China: Insurance & Reinsurance

The writing of insurance contracts is regulated by the Insurance Law of the PRC and related rules.Article 18 of the Insurance Law specifies the required items of an insurance contract, including the insurer, the policyholder, the insured party, the beneficiary of a life insurance, the subject matter of insurance, insurance liabilities, exclusion of liability, etc. Article 19 of the Insurance Law provides certain circumstances under which the clauses in an insurance contract may be deemed invalid. 

Certain insurance clauses and premium rates of insurance policies which relate to social and public interests, mandatory insurance and newly-developed insurance policies of life insurance, etc., should be subject to the approval of the China Banking and Insurance Regulatory Commission (“CBIRC”).  Other types of insurance policies should be filed with the insurance regulatory authorities for their records. Detailed rules include the Guidelines on Development of Insurance Products by Property Insurance Companies (2016), the Administrative Methods on Insurance Contract Terms and Insurance Rates of Life Insurance Companies (Amended in 2015), etc. 

Different types of insurers, such as life insurers, property & casualty insurers, reinsurers, foreign funded insurers and domestic insurers, are subject to different detailed rules under the Insurance Law.  

For instance, life insurance companies should comply with the rules and regulations promulgated by the CBIRC, including the Provisions on Basic Services for Life Insurance Business, the Administrative Measures for the Telemarketing Business of Personal Insurance Products, the Administrative Provisions on Authenticity Management of Personal Insurance Customer Information, the Administrative Provisions on Insurance Terms and Insurance Rates of Life Insurance Companies, etc.. 

Property & casualty insurance company should comply with the rules and regulations including the Administrative Provisions on Insurance Terms and Insurance Rates of Property Insurance Companies, the Guidelines on Development of Insurance Products by Property Insurance Companies, etc. 

Reinsurers should comply with the rules and regulations including the Administrative Provisions on Reinsurance Business, and the Provisions on the Establishment of Reinsurance Companies, etc. 

Foreign investment insurance companies are subject to the Administrative Regulations on Foreign-funded Insurance Companies, the Implementation Regulations for the Regulations on Administration of Foreign-funded Insurance Companies, etc.  

Insurance brokers and other types of market intermediary are subject to the regulation of Article 117 to Article 132 of the Insurance Law, under which business permit would be required to be issued by the CBIRC.  

In addition, insurance intermediaries including insurance brokers, insurance agent companies and insurance adjusters are regulated by the Regulatory Provisions on Professional Insurance Agencies, the Regulatory Provisions on Insurance Brokers and the Regulatory Provisions on Insurance Adjusters. 

Yes, the establishment of both foreign-invested insurance companies and Chinese domestic insurance companies requires the approval of the CBIRC, subject to different requirements: 

As for foreign-invested insurance companies, the foreign insurance company applying for the establishment of a foreign investment insurance company in China shall meet the following conditions according to the newly revised Administrative Regulations of the People’s Republic of China on Foreign-funded Insurance Companies (Amended in 2019): 

• one year before applying for the establishment, the foreign insurance company must have had a total capital of no less than USD 5 billion by the end of the year; 

• the country or region to which the foreign insurance company belongs must have a complete system regarding the supervision and administration of insurance business, and the foreign insurance company must already be under the effective supervision and administration of the responsible authorities of the country or region; 

• the foreign insurance company must have met the criteria of possessing the capacity to indemnify as specified by the country or region to which the company belongs; 

• the foreign insurance company must have obtained the approval for the application from the country or region; and 

• the foreign insurance company must have met other precautionary conditions as stipulated by the insurance regulatory department of the State Council. 

As for Chinese domestic insurance companies where the shareholdings of all foreign investors are no more than 25%, the following requirements should be satisfied according to the Insurance Law (Amended in 2015):  

• the key shareholders shall have continuing profitability, good reputation, shall not have a record of major violation of law or regulation during the past three years, and shall have a net asset of not less than RMB 200 million; 

• the articles of association of the insurance company shall comply with the provisions of the Insurance Law and the Company Law of China; 

• the registered capital of the insurance company shall be no less than RMB 200 million; 

• the directors, supervisors and senior management personnel shall possess the professional knowledge and business and work experience for their appointment; 

• the insurance company shall have a proper organisational structure and management system; 

• the business premises and other facilities relating to business operations of the insurance company shall comply with the requirements; and 

• the insurance company shall satisfy any other criteria stipulated by laws, administrative regulations and the CBIRC. 

Please note that pursuant to the Administrative Measures on Equity of Insurance Companies (2018), shareholders of Chinese domestic insurance companies are classified into four categories: Finance Type I shareholders; Finance Type II shareholders; strategic shareholders; and controlling shareholders, each subject to further different requirements.  

The procedures of approval by the CBIRC of both foreign-invested insurance companies and Chinese domestic insurance companies are similar, consisting of two phrases: preliminary review and formal review.  In terms of the preliminary review, the CBIRC will decide whether or not to accept the application for the establishment of a proposed insurance company within six months from the date of receiving the completed application.  Where the CBIRC decides to accept an application, it shall issue a formal application form to the applicant.  The applicant shall complete the preparations within one (1) year from the date of receiving the formal application form.  After the completion of preparations, the applicant shall submit to the CBIRC the completed application form together with other required documents for a formal review.  The CBIRC will make a decision as to whether or not to approve the application within 60 days from the date of receiving the completed formal application documents.  Where the CBIRC decides to give approval, it shall issue a permit for operating an insurance business, and the applicant shall use such permit to register with the market regulator and obtain a business licence. 

Generally, the key shareholders of insurers shall have continuing profitability, good reputation, no record of major violation of law or regulation during the past three years, and a net asset of not less than CNY 200 million under Article 68 of the Insurance Law. 

Pursuant to the Administrative Measures on Equity of Insurance Companies (2018), shareholders of Chinese domestic insurance companies are classified into four categories, including financial type I shareholders, finance type II shareholders, strategic shareholders, and controlling shareholders, each subject to further different requirements. For instance, controlling shareholders (holding one-third or more of the shares or having a controlling impact) shall have total assets of not less than CNY 10 billion, the net assets in the latest year not less than 30% of the total assets and satisfy certain other requirements. The Administrative Measures on Equity of Insurance Companies also provides that the shareholding of a single shareholder shall not exceed one-third of the registered capital of the insurance company.  

In case of a foreign financial institution as a shareholder of a Chinese insurance company, according to Article 15 of the Administrative Measures on Equity of Insurance Companies, it shall additionally satisfy the following criteria: (1) profitable in the past three accounting years consecutively; (2) total assets in the latest year are not less than US$2 billion; (3) it has received long-term credit rating of A and above by an international rating firm during the past three years; and (4) it satisfies the regulatory requirements of its local financial regulatory authorities.  

In case of a foreign insurance company applying for the establishment of a foreign-funded insurance company in China, it shall have total assets of not less than USD 5 billion at the end of the year before the application according to Article 8 of the Administrative Regulations on Foreign-funded Insurance Companies. Originally, a foreign insurance company of a joint venture insurance company operating a life insurance business in China shall not have more than 51% of the company’s total share capital which restriction would be canceled in 2021. However, on July 20, 2019, the Office of the Financial Stability and Development Commission of the State Council promulgated the Relevant Initiatives on Further Expanding the Opening -up of the Financial Sector, cancelling the restriction on foreign equity ratios in life insurance as of 2020.  

It is impossible to insure risks on a non-admitted basis. Any insurance without a license or authorization within PRC is illegal and shall be fined by the CBIRC. All insurance companies, reinsurance companies, insurance agencies, insurance brokers and insurance adjuster agencies shall obtain insurance permits before operating their business. 

According to Article 158 of the Insurance Law, any act establishing insurance companies or insurance assets management companies without authorization shall be banned, the illegal proceeds shall be confiscated and a fine of one to five times the legal proceeds shall be imposed. Where there is no illegal proceeds or the illegal proceeds is less than RMB 200,000, a fine ranging from RMB 200,000 to RMB 1 million shall be imposed. As for foreign insurance institutions, Article 173 of the Insurance Law further provides that any of their representative office established in China without approval shall be banned and subject to a fine. If the circumstances are serious, the business license of the representative office may be revoked. 

The supervision and enforcement environment in China has become increasingly rigorous in recent years. In 2018, CBIRC and its local offices issued 48 regulatory letters, with 1,430 fines totaling more than RMB 230 million. In 2019, there were more than 800 fines with the total amount of more than RMB 120 million. Key areas include corporate governance, affiliated transactions, management of intermediary business, etc.  

The solvency of insurers is supervised mainly in accordance with the Insurance Law, the Administrative Provisions on the Solvency of Insurance Companies (2008) and a set of rules of risk-oriented solvency supervision system (referred to as “Solvency II System”). An insurance company shall have capital corresponding with its risks and business scale and ensure that its solvency ratio will be no less than 100%. Insurance companies are categorized into three types: (1) companies under inadequate type with the solvency ratio less than 100%; (2) companies under adequate type I with the solvency ratio between 100% to 150%; and (3) companies under adequate type II with the solvency ratio higher than 150%.Insurance companies are also required compile and submit quarterly solvency reports under the Solvency II System to the CBIRC.  

For an insurance company with a solvency ratio less than 100%, the company may be listed as a key regulated entity, and the following regulatory measures may be taken accordingly: (1) for insurance companies with a solvency ratio less than 70%, the CBIRC may require the company to propose a rectification plan to meet the minimum solvency ratio within a time limit, failing of which may result in order of capital increase, order of reinsurance, restriction of business scope, restriction on dividends to shareholders, etc.; (2) for insurance companies with a solvency ratio between 30% and 70%, in addition to the measures listed above, the CBIRC may order the company to auction its assets, transfer its insurance business, limit the renumeration of management, restrict its commercial advertising or order the suspension of new business, etc.; (3) for insurance companies with a solvency ratio less than 30%, the CBIRC may take over  the company in accordance with Article 144 of the Insurance Law. 

The minimum registered capital required for the establishment of an insurance company is RMB 200 million pursuant to Article 69 of the Insurance Law.  Where any insurance company applies for the establishment of provincial branches outside its registered domicile, it shall increase the registered capital no less than RMB 20, 000, 000 for each branch until the registered capital of such insurance company reaches RMB 500, 000, 000 according to Article 6 of the Administrative Measures on the Market Access of Branches of Insurance Companies. The registered capital of an insurance company shall be fully paid-up in cash. 

There are policyholder protection schemes in China. Firstly, the explanation of standard clauses in the insurance contract shall be preferential to the policyholder or the insured in case of any different understanding of such clauses.  

Secondly, an insurer shall highlight and expressly explain the insurance liability exemption clauses which may be invalid without such express explanations to the policyholder.  

Furthermore, where the policyholder fails to perform the obligation of providing truthful information intentionally or due to gross negligence, the insurer shall be entitled to rescind the contract within 30 days as of the date it knows. However, where an insurer is aware of the policyholder’s dishonest disclosure at the time of conclusion of the contract and does  not terminate the contract timely, the insurer shall still be liable upon occurrence of an insured event. 

Lastly, the insurer shall promptly reply to policyholder’s notification regarding the occurrence of an insured event within no more than 30 days for assessment and pay the indemnity within 10 days as of reaching an agreement with the insured party or the beneficiary.  

The insurance groups are subject to the Administrative Measures on Insurance Groups of Companies (for Trial Implementation) ,  which shall be established upon the approval of the CBIRC.  

An insurance group shall have reasonable equity structure and qualified investors who cumulatively control 50% or more of the equity of two or more insurance companies and at least one of which has engaged in insurance business exceeding six years and has gained profits for the past three consecutive years with the amount of net assets no less than RMB1,000 million and total assets no less than RMB1 billion. In addition, registered capital no less than RMB2,000 million,  a proper governance structure and internal control management system, and qualified directors, supervisors and senior management personnel are also necessary criteria for the establishment of an insurance company group. 

 An insurance company group could make investments into both insurance companies and non-insurance financial enterprises. However, the total investment amount in non-insurance financial enterprises shall not exceed 30% of the consolidated net assets of the group.  

Senior managers shall pass the qualification exam on insurance laws and regulations and the relevant knowledge to obtain the appointment qualification approved by the CBIRC in accordance with the Administrative Provisions on Appointment Qualification of Directors, Supervisors and Senior Management Personnel of Insurance Companies (2018). 

Generally, senior managers include general manager, deputy general manager and assistant to general manager of a head office; company secretary, chief compliance officer, chief actuarial officer, chief financial officer and chief audit officer of a head office; general manager, deputy general manager and assistant to general manager of branches and central sub-branches; managers of sub-branch companies and business departments and any other management personnel who have the same decision-making powers or significant impact over the business management activities and risk control of organizations. Such senior managers shall be honest and trustworthy, have good compliance management awareness as well as the requisite business management capacity for performance of duties and pass the exams. Such senior managers should have certain years of working experience, education background and other necessary qualifications to prove that they have possessed the requisite knowledge, capabilities and experience for the proposed appointment. 

Senior managers who make use of related party transaction or occupational convenience to seek improper gains or divulge commercial secrets to harm the interests of the company shall bear compensation liability in accordance with the laws.  

In recent years strict regulation has been the trend in the insurance industry. For example, in 2018, ten senior managers of insurance companies were fined by the CBIRC for a total of  RMB1.17 million for their roles in the sales deception of policyholders. Main reasons for punishment of senior managers include failure to manage the insurance company in a compliant way such as provision of illegal benefits outside insurance contracts to policyholders, establishment of branches without approval, failure to file reports in compliance with laws after change of operating locations, interim executives undertaking operations in excess of permitted timeframes, misleading sales, etc. 

There are restrictions on outsourcing services such as qualification of service providers, types of business, etc. An insurer may outsource the assessment services to insurance appraisal institutions, and the intermediary service to insurance brokers and insurance agencies. In addition, insurers shall be prohibited to outsource insurance sales activities or pay commissions or other benefits to any organizations or individuals without legitimate qualifications. Such unqualified organizations and individuals shall not engage in insurance sales businesses directly or under any pretext. 

Investment assets of insurance companies are classified into five major categories, namely, liquid assets, fixed income assets, equity assets, real estate assets and other financial assets, each subject to certain investment regulatory ratios. The total book balance of investments in equity assets must not exceed 30% of the total assets of the insurance company as at the end of the last quarter, real estate assets not exceeding 30% of the total assets, other financial assets not exceeding  25% of the total assets, and overseas investments not exceeding 15% of the total assets. 

The following way of investment shall be prohibited: (1) deposit insurance funds in a non-banking financial institution; (2) buy shares which are labelled “special treatment” or “special treatment – delisting risk warning; (3) invest in enterprise equities and immovables which do not comply with industry policies of the State; (4) directly undertake real estate development and construction; (5) use investment assets derived from application of insurance funds, to provide guarantee or disburse loan to others, except for loans with personal insurance policy pledged as collateral; and (6) any other investments prohibited by the CBIRC. 

Sales of insurance are mainly regulated on the qualification of sales personnel and sales activities. Insurance sales personnel shall satisfy the qualification criteria, obtain a qualification certificate issued by the CBIRC and a practice certificate issued by the insurance company or the insurance agency which employ them according to the Regulatory Measures on Insurance Sales Personnel (2013). 

In addition, certain sales acts are prohibited, such as defrauding, concealing  important information relating to an insurance contract, giving a policyholder, an insured party or a beneficiary premium rebates or other benefits which are not stipulated in the insurance contract, etc.  

Insurance companies and insurance intermediaries are required to record and keep the key materials involved in the insurance sales process through collecting audio-visual materials and electronic data so as to ensure that sales practices could be replayed and assessible according to the Provisional Measures for the Retrospective Administration of Insurance Sales Practices (2017). 

Yes, there are specific rules regarding distance selling or online sales of insurance such as the Administrative Measures for the Telemarketing Business of Personal Insurance Products, the Interim Measures for the Regulation of Internet insurance businesses (2015), etc.  

In case of telemarketing, an insurance company could set up a telemarketing center or entrust an insurance agency to carry out the telemarketing business. Insurance salespersons may not make random calls to arrange visits with strangers, or to arrange visits with clients by using the name of the telemarketing center of the insurance company.  

In case of online insurance sales, the head office of an insurance company shall establish a uniform and centralized business platform and process flow to conduct centralized operation and uniform management of internet insurance businesses. No employees of insurance companies may develop internet insurance businesses in their own names.In December of 2019, CBIRC released  the Measures for Supervision of Internet Insurance Business (Draft for Comments), which would focus to regulate the mode of internet insurance business, the sales process, behaviors of third-party internet platform, etc.  

Yes. Where an insurer makes enquiries on the subject matter of insurance or the relevant information of the insured party, the policyholder shall provide truthful information. Where the policyholder fails to do so intentionally or due to gross negligence, the insurer shall have the right to rescind the contract, which would commence on the date when the insurer becomes aware of the trigger event for rescission and shall expire if the right is not exercised within 30 days. An insurer shall not be able to rescind a contract if a two-year period has lapsed as of the conclusion of the contract. 

In recent years, with the continuous improvement of Chinese judicial system, the capability of the courts to deal with complex commercial claims cases has been gradually enhanced. Some special courts have been established to hear complex commercial claims. For instance, in 2018, Shanghai Finance Court was established to hear civil and commercial financial cases of first instance that previously fall under the jurisdiction of immediate people’s courts in Shanghai.  

In November 2019, the Supreme People’s Court issued the Minutes of the National Court Work Conference for Civil and Commercial Trials (“Minutes of Trials”), which contains 12 parts and 130 questions in the summary, covering most areas of civil and commercial trials, such as finance, bankruptcy, etc. The Minutes of Trials discusses the front-line difficult and complex issues in civil and commercial trials, covers the latest developments of civil code, company law, securities law, bankruptcy law and other laws, closely tracks the latest regulatory policies in the financial field, and is quite helpful to solve the complex commercial claims in a more consistent manner.  

There are generally two types of alternative dispute resolutions under the Civil Procedure Law (As amended in 2017), including mediation and arbitration. Since 2012, the Supreme People’s Court has cooperated with the CBIRC in exploring alternation dispute resolution of insurance disputes. In 2016, the Supreme People’s Court and the CIRC (the former CBIRC) co-issued the Opinion on Fully Promoting to Establish the Connection Scheme between Litigation and Mediation for Insurance Disputes in order to establish the multiple dispute resolution mechanism for insurance disputes within the whole area of China. According to the data of the Supreme People’s Court, China has established over 166 specialized alternative insurance dispute resolution institutions around the country and has solved over 126 thousand disputes. 

Since an insurance policy has its cash value, it could be transferred as a financial asset under certain conditions in two ways: one is to transfer the ownership of the policy and the other is to use the policy as a guarantee or collateral for a loan. The insurance company should be notified in writing when the transfer is made.   

In case that an insurance company operating a life insurance business is cancelled or declared bankrupt, the life insurance contract it holds must be transferred to another life insurance company. If such insurance company fails to reach an agreement with another insurance company, the CBIRC could designate insurance companies in the life insurance business to accept the aforesaid transfers. 

In the past few years, due to the reform of the CBIRC, the establishment of new insurers has stepped into a sluggish. The approval of the insurance license has been tightened since 2016. There were only 4 newly approved insurance institutions in 2018, 6 in 2017 while 20 in 2016. In 2019, the CBIRC approved the first foreign life pension insurance company- HengAn Standard Life Insurance Co., Ltd.  

The main challenge for new entrants is to develop competitive insurance products, have a good sales and service team, establish nationwide branches network, and promote internet insurance business.  

The insurance industry market is being challenged by the digital innovation more and more. In 2019, Chinese insurance premium income reached RMB 4.25 trillion, a year-on-year increase of 12.17%, including the premium income of the property&casualty insurance of RMB 1.16 trillion, an increase of 8.16% on yearly basis and the premium income of life insurance of RMB 3.1 trillion, an increase of 13.76% on yearly basis. Internet property&casualty insurance premium income in 2019 was RMB 83.862 billion, an increase of 20.60% year-on-year, which was 12 percentage higher than the growth rate of the overall property&casualty insurance market over the same period.  

As of 2019, a total of more than 70 insurance companies have launched internet insurance business. From 2014 to 2019, the total premium income of the internet property&casualty insurance totaled RMB 380.384 billion.  

The CBIRC is also tightening the regulation on internet insurance business by revising and promulgating the Measures for Supervision of Internet Insurance Business (Draft for Comments)  in December 2019, specifying that: 1) only insurance companies and insurance intermediaries could engage in internet insurance business; 2) third-party network platforms could not conduct internet insurance sales; and  3) imposing more specific requirements on employees of internet insurance companies. 

The laws on customer data protection in China are tightening and new rules and standards are in the process of promulgation. Life insurance companies should manage and use customer information in accordance with the principles of legality, reasonableness, security, and confidentiality, properly maintain personal insurance business documents that record customer information, and take effective measures to ensure the security of customer information and prevent leakage of customer information. It is strictly forbidden to illegally use customer information, leak or resell customer information. 

In our opinion, internet insurance, health insurance, pension insurance, liability insurance, commercial insurance in the fields of education, child-care, housekeeping, culture, tourism, sports, etc. could play important roles in Chinese insurance market in the next five years.