New Provisions Govern the Administration of Insurance Companies

ESTABLISHMENT REQUIREMENTS AND PROCEDURES

The 2004 Provisions give more details on the requirements and procedures for the establishment of domestic insurance companies. The requirements and procedures are not applicable to foreign-invested insurance companies; they are required to comply with the establishment requirements and procedures set out in the FIIC Regulations and Implementing Rules. To ensure prudent assessment of new market entrants, the CIRC will require the chairman and the general manager of a proposed insurance company to provide proposals for their market development strategy, business plan and the establishment of internal control systems. All of these will be taken into account when determining whether or not the CIRC will approve an establishment application for the proposed insurance company. The 2004 Provisions also require the CIRC to remind investors in proposed insurance companies of the risks associated with investment in the Chinese insurance industry. Presumably this is to prevent bullish investors from underestimating investment risks, and to encourage long-term investment in insurance companies.

The 2004 Provisions prohibit any change in investors during the preparatory period for the establishment of an insurance company without the prior approval of the CIRC.

ESTABLISHMENT OF BRANCHES AND OTHER BUSINESS ESTABLISHMENTS

Under the 2004 Provisions, if an insurance company wishes to write business in provinces, autonomous regions and cities that are outside its place of registration, then the insurance company must apply to establish a branch in the location where it wishes to write new business. This requirement is intended to prevent insurance companies from undertaking insurance businesses through unauthorized branches or other business establishments in China.

The capital requirements in relation to the establishment of branches have been lowered under the 2004 Provisions. If an insurance company that has a capital of Rmb200 million wishes to establish a branch elsewhere in China, it is required to increase its capital by Rmb20 million for each new branch it establishes unless the insurance company has already increased its capital by such amount prior to its application for the new branch. If the capital of an insurance company reaches Rmb500 million, subject to complying with its solvency margin requirements, the insurance company is not required to further increase its capital for the establishment of new branches. (Similar capital requirements apply to the establishment of branches by foreign-invested insurance companies under the Implementing Rules.) The 2004 Provisions also set out more detailed requirements and procedures for new applications for the establishment of branches.

In addition, the establishment of representative offices of domestic insurance companies in China is subject to a verification process by the CIRC, as opposed to the formal approval requirement existing under the 2000 Provisions. But the ban on representative offices carrying on business activities remains in place. CIRC approval is still required if an insurance company wishes to establish a representative office outside China.

SCOPE OF BUSINESS OF PROPERTY INSURANCE COMPANIES

The 2004 Provisions expressly provide that, subject to verification by the CIRC, property insurance companies may also engage in short-term health and accident insurance. This expansion of the scope of business of property insurance companies was previously reflected in amendments to the PRC Insurance Law made in October 2002.

REGULATORY REQUIREMENTS FOR MATERIAL CHANGES TO INSURANCE COMPANIES

In the 2000 Provisions, there was a fairly long list of corporate changes to insurance companies that required the prior approval of the CIRC. These approval requirements have been simplified under the 2004 Provisions, which provide that CIRC approval is required in respect of the following corporate changes only:

(i) change of corporate form;

(ii) change in the registered capital;

(iii) merger or division;

(iv) change of investors or change of shareholders that hold 10% or more of the shares in an insurance company; and

(v) cancellation of branches and other business establishments.

The following changes are subject to verification by the CIRC (which appears to be a negative vetting process) as opposed to a formal approval requirement, as was required under the 2000 Provisions:

(i) change of company name;

(ii) amendments to the articles of association;

(iii) change of scope of business; and

(iv) change of address.

The 2004 Provisions also introduce filing and reporting requirements in respect of corporate changes that are not considered to be material. For example, changes of shareholders with less than 10% shareholding (other than changes of shareholders of a listed company) and changes of addresses of branches or other business establishments are required to be filed with the CIRC for the record. It appears that the filing should be made before such changes take place