China: China Insurance Alert - Draft Administrative Measures On Controlling Shareholders And Actual Controllers Of Insurance Companies

Last Updated: 26 August 2011
Article by Carrie Yang and Amanda Li

The China Insurance Regulatory Commission ("CIRC") has recently released a draft version of the Administrative Measures on Controlling Shareholders and Actual Controllers of Insurance Companies ("Draft Measures") in July 2011 for comment.

The Draft Measures aim to reinforce the governance and supervision over Chinese insurance companies through regulating the acts of their controlling shareholders and actual controllers.

Controlling shareholder and actual controller

For the purpose of the Draft Measures, a controlling shareholder refers to a shareholder who:

  1. holds, solely or jointly with one or more companies under its control, 50% or more of the equity share capital in the insurance company, or
  2. holds, solely or joint with one or more companies under its control, less than 50% of the equity share capital in the insurance company but has an material influence on the operation of the insurance company.

An "actual controller" is a legal entity or individual who is not a shareholder of the insurance company but is able to actually control the acts of the insurance company through an investment relationship, agreement or other arrangement.

In addition to the above, the acts of the following entities / individuals will also be considered as the acts of the controlling shareholders and actual controllers: -

  1. an entity which is controlled, directly or indirectly, by the controlling shareholder or the actual controller;
  2. if the controlling shareholder or the actual controller is an individual, his / her spouse and children; and (
  3. any other entity or individual as determined by the CIRC.

In an exceptional case, the insurance group / holding companies (as defined under the Administrative Measures on Insurance Group Companies) will not be subject to the Draft Measures.

Transaction acts

The Draft Measures require that any transactions between the controlling shareholder / actual controller and the insurance company shall strictly comply with the provisions of the Interim Measures on the Administration of Related Transactions of Insurance Companies.

A controlling shareholder / actual controller is prohibited from:

  1. requesting the insurance company to provide, with no consideration or on obviously unfair conditions, any funds, properties, services or other benefits; and
  2. taking away the transaction opportunity of the insurance company or increasing the burden of the insurance company.

In addition, an insurance company is prohibited from:

  1. buying any bonds issued by its controlling shareholder / actual controller;
  2. authorising its controlling shareholder / actual controller to make investments on its behalf;
  3. repaying the debts of its controlling shareholder / actual controller; and
  4. paying or making advance payment of the salary, welfare, insurance premium, advertising expense and other costs and expenses for its controlling shareholder / actual controller.

When there is a proposed transaction between the insurance company and its controlling shareholder / actual controller, the independent directors must issue a written opinion in relation to the fairness of such transaction. The transaction must also be disclosed in accordance with the provisions of the Administrative Measures on Information Disclosure of Insurance Companies.

Undertakings to the CIRC

Pursuant to the Draft Measures, the controlling shareholder / actual controller is required to undertake with the CIRC that it will: -

  1. actively coordinate with other shareholder(s) or take effective measures to inject capital funds of the insurance company in a timely manner when the solvency margin of the insurance company is inadequate or if the CIRC requests so;
  2. submit its audited financial reports to the CIRC on an annual basis and report to the CIRC if there is any material negative change to its financial status, capability to inject capital funds and/or credit status;
  3. transfer its equity interest in the insurance company, or cease exercising its shareholder's rights, if it fails to inject capital funds or submit any relevant documents and reports in a timely manner at the request of the CIRC.

In addition, the controlling shareholder / actual controller shall not agree that the insurance company under its control and any subsidiary of such insurance company becomes its shareholder.

Change of control

When the controlling shareholder / actual controller changes its investment and / or development strategy in relation to the insurance company, it shall report to the CIRC in a timely manner.

When the controlling shareholder / actual controller intends to transfer its control over the insurance company, it shall conduct due diligence on the intent, business nature, and asset structure of the proposed transferee, and whether the proposed transferee plans to restructure the insurance company. In addition, the controlling shareholder / actual controller shall prepare a plan with the proposed transferee and the insurance company in relation to the takeover of control. How to deal with any potential violation of regulatory rules or breach of undertakings must be covered in this plan.

If any share transfer will lead to the change of control over the insurance company, the insurance company shall explain this to the CIRC when applying for approval or filing of such share transfer.

Supervisory measures

The CIRC may hold an interview with the controlling shareholder / actual controller if any of the following events occur:

  1. the insurance company incurs a heavy loss;
  2. the solvency margin of the insurance company does not meet statutory requirements;
  3. the insurance company severely violates the regulatory rules; or
  4. the insurance company is exposed to major potential risk.

If the controlling shareholder / actual controller fail to act in compliance with the provisions of the Draft Measures, the CIRC will request for rectification. The CIRC may impose restrictions on the relevant rights of the controlling shareholder / actual controller if it refuses to rectify its act as per request of the CIRC. In case that the controlling shareholder / actual controller causes material damage to the insurance company through related transaction(s) and the insolvency margin of the insurance company is negatively affected, the CIRC may order the controlling shareholder / actual controller to transfer, wholly or partially, its equity interest in the insurance company.


The Draft Measures impose various regulatory obligations on the controlling shareholder / actual controller. In particular, many investors are concerned with the requirement that they are required to take effective measures to inject capital funds when the insolvency of the insurance company is inadequate. The market may therefore expect increasing M&A activities following the formal introduction of the Draft Measures in due course.

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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