This August, the Chinese Insurance Regulatory Committee
disclosed its provisional measures on equity investments made by
Insurance Funds ("Equity Investment
Measures"). With the introduction of the new PRC
Insurance law in October 2009, domestic insurance companies have
begun making equity investments into private companies. The new
Equity Investment Measures lay out a detailed framework outlining
the ways in which insurance companies may participate in direct and
indirect equity investment activities, including investments in
private joint-stock companies and LLCs.
The Equity Investment Measures is significant because it serves
as the first set of guidelines to express the methods in which
institutions providing insurance can invest their funds into
The Measures stipulate that insurance institutions must meet
certain basic management standards before making equity investments
in privately owned companies. For example, insurance companies that
wish to make direct equity investments in privately held companies
must have a sound corporate governance structure and good internal
controls. Furthermore, insurance companies must meet certain basic
solvency and total asset requirements before making equity
investments. In addition, if an insurance institution would like to
make indirect investments by purchasing company equity related
financial products it must meet the same standards as necessary for
companies wishing to make direct equity investments.
The Measures also clarify what kinds of companies insurance
institutions can directly invest in, and what basic management and
debt standards those companies must meet before being considered as
investment targets. The Measures make it clear that insurance
institutions can only directly invest in other insurance
institutions, finance companies that are not insurance related and
companies that are connected to the insurance industry. This
includes medical clinics and hospitals, companies that provide
annuities and auto service companies.
Furthermore, the Equity Measures state that when an insurance
institution wishes to take a controlling stake in another company
it must use its own capital to make that investment. If the
institution will not take a controlling interest in a company, then
it may use its liability reserve funds in addition to its own
capital to make the purchase. The same regulation is applied in
regards to indirect company acquisitions. Finally, the Measures
stipulate that it is forbidden for insurance entities to directly
or indirectly invest in equity through loans or the issuance of
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.
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