Member Article

The China Insurance Regulatory Commission (“CIRC”) issued the Detailed Implementing Rules for the Regulations of the People's Republic of China for the Administration of Insurance Companies With Foreign Investment on 15 March 2004. The Rules, which entered into effect on 15 June 2004, provide more guidance on the establishment and operation of insurance companies with foreign investment (“foreign-invested insurance company”), elaborating on the rules set forth in the 2002 Regulations of the People's Republic of China for the Administration of Insurance Companies With Foreign Investment (the “Regulations”). The Rules comply with China’s obligations under its World Trade Organisation Protocol of Accession to the World Trade Organisation. Equity and capital The Rules specify that a foreign party’s equity share in a sino-foreign joint venture insurance company engaging in the personal insurance business in the PRC may not exceed 50%. The registered capital or working capital of a foreign-invested insurance company must be paid in currency. The Rules give existing operations that are not in compliance with the new minimum registered capital requirement of RMB 200 million two years to meet the requirement. CIRC will not approve the business development plans of companies that are not in compliance. After the establishment of a branch company of a foreign insurance company, the foreign insurance company may not withdraw its working capital in any manner. Application requirements The Regulations specified the requirements which a foreign insurance company must satisfy in order to establish a foreign-invested insurance company. The Rules provide more detail regarding these application requirements. The prudential requirements which the CIRC may impose on a foreign applicant at a minimum include the following: • the foreign applicant must have a reasonable legal person governance structure; • the foreign applicant must have a stable risk control system; • the foreign applicant must have a perfected internal control system; • the foreign applicant must have an effective management information system; and • the foreign applicant must have good operating conditions and no record of material violations of laws or regulations. Unlike the Regulations, the Rules specify the conditions which the Chinese applicant needs to satisfy. The Chinese applicant must satisfy the following conditions: • the Chinese applicant be registered with a PRC administration for industry and commerce as a company or enterprise with legal person status unless it is a commercial bank, securities institution or wholly foreign-owned enterprise established under the Law of the People's Republic of China on Wholly Foreign-Owned Enterprises; • the Chinese applicant be approved by its regulatory authority; • the Chinese applicant have good operating conditions and have been profitable in the financial year preceding the application date; and • the Chinese applicant contribute capital with its own capital which derives from a legitimate source. Other provisions The Rules also detail the requirements that foreign-invested insurance companies must satisfy to establish branches and sub-branches and provide rules on the dissolution of foreign-invested insurance companies