China's Top Insurance Regulator Drastically Cuts Maximum Shareholding Ratio by Single Stakeholders
Liao Shumin
DATE:  Mar 07 2018
/ SOURCE:  Yicai
China's Top Insurance Regulator Drastically Cuts Maximum Shareholding Ratio by Single Stakeholders China's Top Insurance Regulator Drastically Cuts Maximum Shareholding Ratio by Single Stakeholders

(Yicai Global) March 7 -- China's top insurance regulator has unveiled a new series of measures designated to rein in insurance companies' increasing appetite to step into other sectors, creating potential financial risk. The new measures introduce substantial changes in the shareholding, operation and management structures of insurance companies, radically reducing single shareholders' controlling stake.

Administrative Measures on Equities of Insurance Companies unveiled by China Insurance Regulatory Commission, CIRC, in a press briefing today specify insurance companies' shareholding eligibility, ownership structure and authenticity of the capital, and lower the upper limit of shareholding ratio in an insurance company by a single shareholder from 51 percent to one-third.

Once the regulation is put into effect, there will be no retrospective adjustment to the ownership structure of the existing insurance companies in principle. However, CIRC will give window guidance and targeted regulatory measures for some insurance companies with potential risks in the ownership structure, it said. The new investments in insurance companies will also be regulated in strict accordance with the new regulatory requirements.

If an insurance company's equity interests are too scattered, it can easily lead to problems such as insider control and free riding by shareholders, which restrict the development of the company. But if the equities are too concentrated, it is not conducive to playing a balancing role, easily leading to damage to the interests of small shareholders and even illegitimate transfer of interests, which is a potential risk for the safety of insurance funds and the interests of policyholders.

To strengthen insurance companies' equity supervision, the new measures also divide insurance company shareholders into three categories: controlling shareholders, strategic shareholders and financial shareholders, based on shareholding ratio of stakeholders and the influence on the insurance company's operation and management. They are subject to different supervisory and regulatory measures depending on their categories and different qualification requirements.

In recent years, a series of moves by insurance funds in the capital market caused widespread concern. The joint acquisition of Qianhai Life Insurance Co. and shareholder Baoneng Group, which attracted much attention during Baoneng's fight for control of China Vanke Co., hit the capital markets and corporate entities. It is also led to discussion about shareholding ratio of insurance companies. The published ownership ratio of actual controllers of Qianhai Life Insurance, Evergrande Life Insurance Co. and Huaxia Life Insurance Co. stand at about 51 percent respectively, public data show, which will now come under pressure due to new rules.

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Keywords:   Insurance Company,Shareholder,CIRC