1. The regulator

The China Insurance Regulatory Commission (CIRC) regulates insurance companies and intermediaries, including agents, brokers, loss adjustors and their business operations.

  1. Subsidiary/Branch

Life and non-life insurer subsidiaries are permitted. Branches of non-life foreign insurers are permitted. Licences are issued on a 'province by province' basis.

  1. FDI restrictions

Yes.

  • Non-life – 100 per cent by foreign investor
  • Life – 50 per cent by foreign investor

An insurer branch or subsidiary with ? 25 per cent foreign investment is 'foreign funded' and different administrative regulations apply. E.g. a Representative Office is required for a 2 year 'seasoning' period before a foreign funded insurer may be set up.

  1. Control approvals

≥ 5 per cent – prior approval of CIRC required.

< 5 per cent – notification to CIRC after transfer.

Directors and controllers must be approved by CIRC as 'fit and proper'.

  1. Minimum capital

Insurer (life):

Nationwide:

RMB 200 million for applying one of the following three basic businesses: (i) life and annuity insurance, (ii) health insurance and (iii) accident injury insurance, and additional RMB 200 million for adding one more basic business above

RMB 1 billion for carrying on all three basic businesses above, plus one category of the following two additional basic businesses: (i) participating insurance and (ii) universal life insurance

RMB 1.5 billion for carrying all five basic businesses above
Branches: RMB 20 million for any single branch and RMB 500 million max for multiple branches

Insurer (non-life):

Nationwide: RMB 200 million for applying one of the following basic businesses: (i) motor insurance (including mandatory and commercial), (ii) enterprise/ household property insurance and engineering insurance (excluding special risk insurance), (iii) liability insurance, (iv) marine hull/cargo insurance and (v) short term health/accident injury insurance, and additional RMB 200 million for adding one more basic business above
Branches: RMB 20 million for any single branch and RMB 500 million max for multiple branches

Carrying on extended life businesses (such as unit-linked insurance and variable annuity insurance) or extended non-life businesses (such as agricultural insurance, special risk insurance, credit warranty insurance and investment linked insurance) will subject insurers to higher qualification requirements such as having engaged in requisite basic businesses, average net asset value requirement etc.

  1. Risk based capital

Yes.

China formally launched Solvency II regime in May 2013, which includes the threepillar structure. One of the three pillars is the requirement on capital quantification, which obliges an insurer to identify and quantify categories of risks (such as insurance risks, market risks, credit risks etc.) supported by comparable amount of capital.

  1. Group supervision

Yes. A group requires two or more insurance companies approved by CIRC and then constitutes all member companies.

  1. Policyholder protection

Yes, funded by industry levies.

In the event of insolvency or revocation of licence of a non-life insurer whose assets are insufficient to pay benefits, a non-life policyholder protection fund covers 100 per cent of losses up to RMB 50,000 and thereafter, 90 per cent of losses for individual policyholders and 80 per cent for corporate policyholders.

In the event of insolvency or revocation of licence of a life insurer, the policies are required to be transferred to a new insurer and the policyholder protection fund will make up the shortfall in supporting assets to 90 per cent of individual policyholder liabilities and 80 per cent of corporate policyholder liabilities.

  1. Portfolio transfers

Yes. Consent of CIRC and individual policyholders is required for a voluntary portfolio transfer between contracting insurers. If a policyholder objects or fails to consent, CIRC cannot compel the transfer of a policy. In the event of insolvency or revocation of licence of a life insurer, CIRC can compel a portfolio transfer without policyholder consent.

  1. Outsourcing

There is no unified law on outsourcing applicable to insurance operations. Individual laws address individual areas. For example there is an express prohibition on outsourcing the management of the security of information systems. Non-core backoffice functions may be outsourced to qualified outsource providers (e.g. call centres, customer service and book-keeping).

*as at 1 January 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.