CIRC issues measures on indirect supervision of insurers' non-insurance subsidiaries

On September 28, 2014, the China Insurance Regulatory Commission (CIRC) formally issued the Interim Administrative Measures on the Non-insurance Subsidiaries of Insurance Companies (the Interim Measures), which took immediate effect. We reported on this topic when the CIRC issued the draft of the Interim Measures for public consultation in May this year (For details, please refer to Asia Pacific – focus on insurance August 2014).

The Interim Measures contain most of the provisions set forth in the draft version, however, there are some key differences which can be summarised as follows:

  • Permitted investments: Investment in call centres is removed from the Interim Measures. This, to some extent, complies with the current regime that a non-life insurer must carry on telemarketing business itself, while a life insurer can conduct telemarketing business either itself or through qualified insurance intermediaries (which are obviously not non-insurance companies).
  • Investment restrictions: Different from its draft version, the Interim Measures lift the prohibition on an insurer's subscription for bonds issued by a non-insurance subsidiary. Also, subject to proper internal or external approval, an insurer is permitted to make commitments to increase investments in or provide assistance to a non-insurance subsidiary as well.
  • More stringent solvency requirement: The Interim Measures increase the solvency requirement from 120 to 150 per cent for an insurer to invest directly in a non-insurance subsidiary which engages in service sharing business.

CIRC permits insurance funds to invest in preferred shares

CIRC issued the Notice on Relevant Matters concerning the Investments in the Preferred Shares by Insurance Funds (Notice) on October 17, which took immediate effect. The Notice allows the investments of insurance funds, directly or through qualified assets managers, in preferred shares. Preferred shares, publicly issued or not, refer to types of shares (other than ordinary shares), whose holders may enjoy preferential rights in allocation of profits and residual assets but may be restricted from participating in decision-making rights. The Notice includes the following key points:

  • preferred shares invested in must have a long-term credit rating equal to A or above, rated by a credit rating institution recognised by CIRC;
  • investment in preferred shares is subject to an investment ratio requirement which is based on the classification of the preferred shares as equity assets or fixed-income assets by the issuers of such preferred shares;
  • an internal credit assessment mechanism shall be established for insurance funds' investment in the preferred shares; and
  • investment in the preferred shares is subject to internal approval (e.g. approval of board or board authorised organs) and post-reporting to the CIRC.

By way of background, the preferred shares scheme was formally launched in China late last year. In practice the authorities have maintained a conservative attitude towards the scheme and, consequently, only a limited number of entities have been approved to offer preferred shares on a trial basis.