China’s regulator sets a lower ceiling on insurers’ shareholders to rein in a runaway industry

China Insurance Regulatory Commission seeks transparent ownership structure as rules take effect from April 10

PUBLISHED : Wednesday, 07 March, 2018, 6:32pm
UPDATED : Wednesday, 07 March, 2018, 11:43pm

China on Wednesday introduced new rules to restrict the ownership of big shareholders in insurance companies as it seeks transparent shareholding structures in the wake of the issues surrounding the country’s top life insurer Anbang Insurance Group.

Under the new rules introduced by the China Insurance Regulatory Commission (CIRC), a single shareholder will only be allowed to hold as much as 33 per cent stake in an insurer, down from the current cap of 51 per cent and prohibiting the holding of stakes through proxies.

The new rules, which take effect from April 10, also stipulate that investors must use their own funds to buy a stake in an insurer and cannot use a holding company or the transfer of expected returns to bypass capital restrictions.

Investors are also forbidden from misappropriating insurance funds or repurposing funds for investment.

All insurers have to build “clear and reasonable shareholding structure”, and must reveal “the actual controlling entity to the regulator”, said the document published on the CIRC’s website.

Sun Wujun, a professor with the School of Business in Nanjing University, said the regulator has picked an interesting timing to introduce the new rules, hinting at the ongoing National People’s Congress, China’s most important annual political meetings.

He said that a few issues had emerged in the insurance industry since 2014. “For example, some companies tend to use insurance premiums as a financing channel and support other business.

“Also, companies like Anbang have been using complicated shareholding structures, which makes regulating difficult. The new rules are meant to tackle the issues and to contain the biggest shareholders’ power through share dilution.”

China has been forceful in clearing financial risks to ensure the stability of its economy since last year, with regulators undertaking intensive measures in the insurance sector.

On February 23 regulators announced that Wu Xiaohui, founder and chairman of Anbang Insurance Group, had been removed from his post after prosecution measures were initiated against him and that the CIRC would take over the running of the company.

Regulators remove Anbang chairman Wu Xiaohui for ‘economic crimes’, take over conglomerate

Daiwa analyst Leon Qi said he expected more regulatory tightening with regard to Chinese insurers’ investments and ownership levels to be announced during the National People’s Congress, followed by much more stricter enforcement.

“The possible merger of the financial regulators as well as the appointment of a new PBOC [People’s Bank of China] governor are likely to lead to a more powerful regulatory body, and make for smoother execution,” he said.