China To Further Open Up Its Life Insurance Sector To Foreign Investment.

 

20 September, 2017

 

 

CIRC vice-chairman outlines steps to market liberalisation. 

 

Deep commitment to liberalise the insurance sector shown in recent official written and verbal policy statements 

 

The policy background 

 

Following its 20-point plan published on 17 January 2017, which emphasized China’s commitment to open up more sectors and industries to foreign investment, foster fair competition in its domestic markets and create more incentives for foreign investors in China – a commitment now already implemented in certain respects, such as the recent revision of the Foreign Investment Industrial Guidance Catalogue – the State Council subsequently announced, on 8 August 2017, a more detailed policy package containing broad details of the specific reforms being planned to achieve the January objectives.

 

The State Council’s recent announcement includes express reference to, amongst others, further opening of the insurance market to foreign investment, with a detailed timetable and roadmaps to follow. 

 

In a recent seminar, Mr Chen Wenhui, Vice-Chairman of the China Insurance Regulatory Commission (“CIRC”) reinforced the government’s commitment to further liberalise the insurance sector in the following messages directed to foreign invested insurance companies in China: 

 

• foreign insurance companies which have established insurance companies in China are encouraged to expand their China businesses into the new areas of healthcare, aged care and catastrophe insurance; and 
• CIRC will be further simplifying its rules and procedures on market access with a view to attracting more international investment in the insurance sector in China. 

 

The context 

 

It is rumoured that the Chinese government is planning to permit foreign investors to hold controlling interests in life insurance joint ventures. If true, this would substantially liberalise the only current restriction on foreign shareholdings in insurance joint ventures (being a cap of 50 per cent. in the life insurance sector). 

 

However, it remains to be seen whether: 

 

• the CIRC will soon effect the liberalisation commitments of the recent government policies (as summarised in the recent speech outlined above) by permitting foreign insurance companies to own more than 50 per cent. of a life insurance joint venture; or 
• the reform would instead provide for foreign insurance companies to hold an additional licence through a new investment in a specialised sub-sector of the life insurance industry, whilst leaving the cap unchanged. 

 

As background, the CIRC’s “single presence” unwritten policy dictates that a foreign insurance company is generally not permitted to invest in more than one life insurance company in the whole of China

 

This notwithstanding, the policy has been relaxed in the Shanghai Free Trade Zone, where foreign insurance companies are encouraged to establish specialised health insurance joint ventures, even if they may have already invested in life insurance joint ventures outside the Shanghai Free Trade Zone.

 

For example, in 2014, Allianz SE successfully established a health insurance joint venture in the Shanghai Free Trade Zone, in which it holds an equity interest of 22.949 per cent.; this investment complements its existing investment in another life insurance joint venture in China. 

 

Market expectations 

 

As befits the Chinese government’s original intention in instituting preferential policies in the new free trade zones on a pilot basis, special treatment that is currently only available to investors in the free trade zones (such as the above example in the Shanghai Free Trade Zone) would be expected to apply outside the free trade zones in due course. 

 

Accordingly, though we have yet to see the precise policies through which the further reform of the insurance sector will take shape, the CIRC is expected to provide further details in the near future. 

 

Reference 

 

Circular on Certain Measures Promoting the Growth of Foreign Investment (国务院关于促进外资增长若干措施的通知), State Council, 16 August 2017 

 

 

For further information, please contact:

 

Matthew Middleditch, Partner, Linklaters

matthew.middleditch@linklaters.com