Insurance and Reinsurance in China 2024

INSURANCE AND REINSURANCE 2024

CHINA

Elsie Shi, George Hualiang Yu

(Jincheng Tongda & Neal)

REGULATION

Regulatory agencies

Identify the regulatory agencies responsible for regulating insurance and reinsurance companies.

The National Financial Regulatory Administration (NFRA), a ministerial-level agency of the central government of China, is the Chinese insurance industry regulator. The NFRA is charged with:

uniforming regulation and supervision of the Chinese financial industry, except for the securities sector;
strengthening institutional supervision, conduct supervision, functional supervision, look-through supervision and on-going supervision;
ensuring the lawful, safe and sound operation of the financial industry; and
protecting financial consumers’ legitimate rights.

In March 2023, the Chinese government announced a series of institutional reforms of the central government authorities including the formation of NFRA, which is to replace the former China Banking and Insurance Regulatory Commission as the Chinese insurance industry regulator.

Formation and licensing

What are the requirements for formation and licensing of new insurance and reinsurance companies?

The requirements for formation and licensing of new insurance and reinsurance companies are similar and principally grouped into four general categories:

shareholding percentage restrictions;
shareholder qualifications;
paid-in capital requirements; and
NFRA approval.

Shareholding percentage restrictions

For any ‘domestic’ Chinese insurance or reinsurance company (i.e, a company wherein the equity interest held by domestic investors is greater than 75 percent), the following restrictions apply:

a single shareholder may not hold an equity interest in excess of one-third (unless derived through the establishment or acquisition of another insurance company for the purpose of business innovation, or specialized or group operation);
in the case of a limited partnership (LP), no single LP may acquire an equity interest in excess of 5 percent, and the aggregate equity interest held by multiple LPs may not exceed 15 percent;
in the case of a public institution or social group, unless otherwise authorized by the State Council of the People’s Republic of China, no such entity may acquire an equity interest that is equal to or greater than 5 percent; and
in the case of a natural person, unless otherwise authorized by the NFRA, no such individual may acquire an equity interest other than a 5 percent or lesser interest in a publicly listed entity.

For any ‘foreign-invested’ insurance or reinsurance company (i.e, a company wherein the equity interest held by foreign investors is not less than 25 percent), see ‘Foreign ownership’ for a description of restrictions on foreign ownership. However, the above-described shareholding percentage restrictions on any domestic Chinese insurance or reinsurance company may apply to domestic investors of a foreign-invested insurance or reinsurance company by reference.

Shareholder qualifications

Foreign and domestic investors are subject to differing shareholder qualification requirements. To qualify to invest in a domestic Chinese insurance or reinsurance company, the investor must satisfy differing conditions depending on shareholding categorization (the shareholding category) as being either a ‘Financial I’ shareholder, a ‘Financial II’ shareholder, a ‘strategic’ shareholder or a ‘controlling’ shareholder. The following shareholder qualifications for a domestic Chinese insurance or reinsurance company may also apply to the domestic investors of a foreign-invested insurance or reinsurance company by reference.

Financial shareholder

A Financial I shareholder (an investor holding an equity interest of less than 5 percent) must satisfy the following criteria:

be in good operational condition and possess a reasonable amount of business revenue;
have sound financial status and have made profits during the preceding fiscal year;
have a good tax payment record, without any record of tax evasion during the preceding three-year period;
have a good credit record, without any record of major dishonest behavior during the preceding three-year period; and
have a good compliance status, without any record of major illegality or irregularity during the preceding three-year period.

Financial II shareholder

A Financial II shareholder (an investor holding an equity interest equal to or greater than 5 percent, but less than 15 percent) must satisfy the above criteria (1) up to and including (5) and, additionally, must satisfy the following criteria:

have a good reputation, stable investment behavior and prominent core business;
have the capability to make continuous capital contributions and have made profits during the preceding two consecutive fiscal years; and
have a relatively strong capital position with net assets of not less than 200 million yuan.

Strategic shareholder

A strategic shareholder (an investor that either: holds an equity interest equal to or greater than 15 percent, but less than one-third; or whose voting power, based on its equity interest, is sufficient to have material influence over resolutions of shareholders meetings) must satisfy the above criteria (1) up to and including (8) and, additionally, must satisfy the following criteria:

have the capacity to make continuous capital contributions and have made profits during the preceding three consecutive fiscal years;
have net assets of not less than 1 billion yuan; and
have a balance of equity investments not exceeding its net assets.

Controlling shareholder

A controlling shareholder (an investor that either: holds an equity interest equal to or greater than one-third; or whose voting power, based on its capital contribution or equity interest, is sufficient to have controlling influence over resolutions of shareholders meetings) must satisfy the above criteria (1) up to and including (11) and, additionally, must satisfy the following criteria:

have total assets of not less than 10 billion yuan; and
have net assets equal to or greater than the value of 30 percent of such shareholder’s total assets as at the end of the preceding year.

Other circumstances

An investor that is a domestic LP must satisfy the above criteria (1) up to and including (8) and, additionally, must satisfy the following criteria:

any general partner of the LP must have a good credit record;
any general partner of the LP must have a good compliance status, without any record of major illegality or irregularity during the preceding three-year period;
where a duration is set, prior to expiry of such duration, the LP must transfer any equity of such insurance company held by it;
the LP must possess a simple hierarchy and clear structure; and
the LP may not serve as a promoter to establish an insurance company.

An investor that is either a domestic public institution or social group must satisfy the above criteria (1) up to and including (5) and, additionally, must, among other things, satisfy the following criteria:

the main business or major matters of involvement of the public institution or social organization must be related to the insurance industry; and
the investment transaction must be approved by its competent superior authority.

An investor that is a domestic financial institution must satisfy the respective criteria pertinent to the entity’s shareholding category, as well as satisfying all relevant laws and regulatory requirements of applicable financial regulatory authorities.

An insurance company that serves as a promoter to establish an insurance company, or becomes a controlling shareholder, must satisfy the respective criteria pertinent to the entity’s shareholding category, as well as satisfying the following criteria:

have a record of more than three years of continuous business operations;
possess good corporate governance and a system of sound internal controls;
have made profits during the preceding fiscal year;
the headquarters must have good compliance status, without any record of major illegality or irregularity during the preceding year;
have a good credit record, without any record of major dishonest behavior during the preceding three-year period;
have net assets not less than 3 billion yuan;
have a core solvency ratio of not less than 75 percent, a comprehensive solvency ratio of not less than 150 percent and a comprehensive risk rating of not less than Grade ‘B’ during the preceding four quarters; and
other requirements specified by the NFRA.

Paid-in capital requirements

Paid-in capital requirements are determined according to the company’s scope of business.

NFRA approval

The NFRA employs a two-stage approval system with respect to the formation and licensing of a new insurance or reinsurance company. In the first stage, an application must be submitted to the NFRA to obtain preliminary approval for the establishment of a company. After the first-stage approval is obtained, a company must complete the preparation for establishment within one year, during which time the company may not engage in any insurance business, but may conduct activities relating only to preparation for the future commencement of business operations. After completion of preparation for establishment, a company must obtain the second-stage approval from the NFRA prior to commencing business operations.

Other licenses, authorizations and qualifications

What licenses, authorizations or qualifications are required for insurance and reinsurance companies to conduct business?

Insurance and reinsurance companies are licensed to conduct insurance business both at the legal entity-level and at the branch level. As to property and casualty (P&C) insurance and reinsurance companies, the central office of the NFRA has cognizance over administration of legal entity-level licensing and provincial branch-level establishment licensing, and the relevant local NFRA branch has cognizance over administration of branch-level business commencement licensing, or lower branch or municipal-level licensing. As to life insurance companies, the central office of NFRA has cognizance over legal entity-level licensing, and the relevant local NFRA branch has cognizance over administration of branch-level or lower level licensing. The branch-level business commencement licensing administrated by the relevant local NFRA branch does not include the branches of policy insurance companies or other insurance companies as may be specified by the NFRA.

With respect to insurance companies, life and non-life insurance business lines are classified into ‘basic’ and ‘extended’ categories. Companies established after 2 May 2013 (other than an insurance holding company, captive property insurance company, mutual insurance company or specialized insurance company) initially are only approved by the NFRA to conduct one or more specified basic lines of business, and are required to obtain further approval from the NFRA to operate a new basic line of business or to expand into any extended line or lines of business.

In addition to NFRA licensing, insurance and reinsurance companies must also register with the State Administration for Market Regulation (SAMR) or its local bureaus to obtain a business license before engaging in insurance business. Generally, SAMR registration is procedural in nature and, once NFRA licensing is obtained, an enterprise typically would not encounter any significant obstacles in obtaining an SAMR business license.

Officers and directors

What are the minimum qualification requirements for officers and directors of insurance and reinsurance companies?

Any prospective member of the board of directors or board of supervisors, or prospective senior officer (including any general manager, deputy general manager, assistant general manager, secretary of the board of directors, chief compliance officer, chief actuary, chief financial officer or chief audit officer) of an insurance company must apply to the NFRA for approval of his or her qualifications for the position. Generally, any such candidate must:

be familiar with insurance laws and regulations;
hold a bachelor’s degree;
have full civil capacity;
possess good character and good law-abiding and compliance records;
have the knowledge, experience and competence required for the performance of his or her duties, as well as time and conditions required for normal performance of his or her duties within the territory of China;
have prescribed years of related work experience; and
have the independence required for assuming the position of director, supervisor or senior officer.

Additional particular qualification criteria may be applicable according to the specific position. Additionally, any candidate would be disqualified from a position as a senior officer or director of an insurance or reinsurance company if the candidate:

is a minor, incompetent or otherwise lacks full civil capacity;
received specified criminal or administrative penalties (including penalties imposed by Chinese authorities or authorities of other jurisdictions) within a certain period prior to the application;
is under investigation by the NFRA for serious unlawful conduct;
received a warning or monetary fine from the NFRA during the year prior to the application;
served as a director or senior officer for another company and is directly responsible for the failure of that company (including bankruptcy, revocation of business license or closure by a governmental agency) within a certain period prior to the application;
served as a director or senior officer for another insurance company, is directly responsible for the distress of that insurance company and that insurance company is under administrative supervision or in receivership;
is financially troubled; or
falls under other situations as prescribed by the NFRA.

Capital and surplus requirements

What are the capital and surplus requirements for insurance and reinsurance companies?

With respect to an insurance company, the minimum paid-in capital is 200 million yuan. An insurance company (other than an insurance holding company, captive insurance company, mutual insurance company or specialized insurance company) with registered capital of 200 million yuan may only conduct one basic line of P&C business or one basic line of life business, and is required to increase its paid-in capital to expand its business scope. However, a company established prior to 2 May 2013 with registered capital of 200 million yuan may be permitted by the NFRA to conduct a full scope of business.

With respect to a reinsurance company that conducts only life or non-life reinsurance business, the minimum paid-in capital (or, in the case of a Chinese branch of a foreign reinsurance company, the minimum operating fund) is 200 million yuan. For a reinsurance company that conducts both life and non-life reinsurance business, the minimum paid-in capital (or, in the case of a Chinese branch of a foreign reinsurance company, the minimum operating fund) is 300 million yuan.

Reserves

What are the requirements with respect to reserves maintained by insurance and reinsurance companies?

The Chinese Insurance Law requires insurance companies to set aside liability reserves necessary to protect customers’ interests, and the NFRA has promulgated detailed rules with regard to the calculation of minimum reserves. Insurance and reinsurance companies are also required to calculate solvency in accordance with standards prescribed under China’s Risk Oriented Solvency System (C-ROSS). The Phase II of C-ROSS took effect in 2022, which revised and updated the Phase I formally promulgated in 2015. Pursuant to C-ROSS, the NFRA quarterly assigns each insurance company a solvency risk rating of ‘A’, ‘B’, ‘C’ or ‘D’ (representing an increasing level of solvency risk) based on an evaluation of each company’s core solvency ratio, comprehensive solvency ratio and various other factors. NFRA should take the following regulatory measures against insurance companies whose core solvency ratios are lower than 50 percent, or comprehensive solvency ratios are lower than 100 percent, or solvency risk rating is lower than ‘B’: supervisory talk; requesting plans for preventing solvency deterioration or for improving risk management; restricting remuneration of directors, supervisors and senior management members; and restricting profit distribution to shareholders. NFRA may, at its own discretion and considering the specific reasons for the decline in solvency, also take other measures such as requiring a capital increase, restricting business scope or growth, requiring adjustment to its investment and etc.

Product regulation

What are the regulatory requirements with respect to insurance products offered for sale? Are some products regulated by multiple agencies?

With respect to P&C products, the NFRA requires that certain types be registered for approval by the NFRA prior to being offered for sale, while remaining types are permitted to be immediately offered for sale, as long as they are properly filed with the NFRA within 10 days of the offering date. Products prescribed by the NFRA as requiring approval include non-mandatory auto insurance without adopting model terms and conditions, non-life investment-oriented insurance, and any mandatory insurance or other insurance concerning the public interest. Products that have been previously approved by the NFRA must again be approved by the NFRA if the product’s insurance clause or premium is amended. Products that have been previously registered with the NFRA must again be filed with the NFRA if the insurance coverage or premium is amended. With respect to life insurance products, the NFRA requirements generally follow the same approval or registration procedure as for P&C products. The following life insurance products have been prescribed by the NFRA as requiring approval: life or annuity insurance products other than ordinary, participating, universal and investment-linked products, and certain group participating life and annuity products.

On 20 September 2023, NFRA promulgated the Management Measures for Insurance Sales Behavior, which became effective on 1 March 2024, requiring that insurance companies classify and grade their insurance products based on the complexity of products, premium costs, risks of insurance benefits and other standards. Insurance products with different grades will be subject to different requirements in respect of sales behaviors.

Regulatory examinations

What are the frequency, types and scope of financial, market conduct or other periodic examinations of insurance and reinsurance companies?

With respect to insurance companies, the NFRA carries out a comprehensive assessment and classification examination quarterly and will, accordingly, determine applicable regulatory measures, if any. Effective 1 March 2022, the NFRA carries out generally at least one off-site regulatory assessment every year on the overall risk status of insurance companies and their branches. The NFRA also mandates a system of supplemental periodic reporting, including actuarial reports, financial reports, solvency reports, assets and liabilities management reports, affiliated transaction reports, corporate governance self-assessment report, insurance fraud risk reports and compliance reports, each of which must respectively be provided to the NFRA within the relevant prescribed time frame. In addition to periodic reports, insurance companies are also obligated to submit a variety of event-based reports. The NFRA also carries out a system of programmed and ad hoc inspections. The NFRA may use ad hoc inspections as a means of testing regulatory compliance with selected topics (e.g, shareholder relationships, corporate governance and insurance company internal control, capital investment, financial records keeping and adherence to C-ROSS requirements).

Investments

What are the rules on the kinds and amounts of investments that insurance and reinsurance companies may make?

For the purposes of supervision, the NFRA classifies permissible investment assets into five categories and imposes certain restrictions with respect to the relative proportions of different assets. In terms of classification, the principal asset categories comprise:

current assets;
fixed-income assets;
equity assets;
real estate assets; and
other financial assets.

In terms of investment restrictions, the NFRA requires insurance and reinsurance companies to diversify investment in accordance with specified relative proportions. Generally, the total book balance of investment in items (4) and (5) may not exceed 30 percent or 25 percent, respectively, of the total assets of the company at the end of the preceding quarter, while different caps are set on the equity asset investment balance for insurance companies with different comprehensive solvency ratios as of last quarter end, which caps range from 10 percent to 45 percent of the insurance company’s total assets as of last quarter end. If its comprehensive solvency ratio is lower than 100 percent as of last quarter end, the insurance company should stop increasing its equity asset investment immediately. In addition, aggregate outbound investment may not exceed 15 percent of the total assets of the company as at the end of the preceding quarter. Subject to certain limitations, the total book balance of a single investment in items (2), (3), (4) and (5) may not exceed 5 percent of the total assets of the company as at the end of the preceding quarter. In addition, subject to certain limitations, the total book balance of investments in a single legal entity may not exceed 20 percent of the total assets of the company as at the end of the preceding quarter. The NFRA may adjust these proportions from time to time.

With respect to company acquisition, among other requirements, a company may only use funds derived from its own equity to acquire a publicly listed company, and is prohibited from either acquiring the company in concert with any other individual or company not subject to regulation by the NFRA, or financing the acquisition using publicly listed stock assets as collateral.

Change of control

What are the regulatory requirements on a change of control of insurance and reinsurance companies? Are officers, directors and controlling persons of the acquirer subject to background investigations?

In the case of a new investor that is not already a shareholder of the target company, the investor must submit, among other things, information regarding its shareholders or controlling persons, and a statement describing relationships among its shareholders or controlling persons and other investors in the target company. The NFRA may, additionally, conduct background investigations of the officers, directors and controlling persons, and may further require the investor to provide supplemental documents or explanations, or both, regarding its shareholding structure.

If a shareholder owns equity of an insurance or reinsurance company, the value of which is equal to or greater than one half of the total assets of the shareholder and, if the actual controller of the shareholder should be changed, the new actual controller must also satisfy the applicable shareholder qualification criteria and, additionally, must provide relevant materials to the insurance company, to be filed with the NFRA within 20 working days prior to the change.

Financing of an acquisition

What are the requirements and restrictions regarding financing of the acquisition of an insurance or reinsurance company?

Generally, an investor in an insurance or reinsurance company may only invest using cash derived from its own equity, and may not use debt to finance its investment. Unless otherwise permitted by the NFRA, these funds must be self-owned, limited to an investor’s net assets and generated from permitted sources. Establishment of an equity-holding institution or assigning rights to expected earnings from the equity interest to circumvent this requirement are expressly prohibited. More specifically, an investor may not directly or indirectly acquire the equity of an insurance or reinsurance company using capital from any of the following sources:

loans relating to the target company;
capital obtained by using deposits or other assets of the target company as guarantees;
capital obtained by improperly using the financial influence of the target company or by virtue of an improper affiliate relationship with the target company; or
capital obtained by other means prohibited by the NFRA.

An investor that is an insurance or reinsurance company may not use its registered capital to make repeated capital contributions to subsidiaries at different levels of its organizational hierarchy. The use of capital obtained by an insurance company from its investment in trust plans, private funds, equity investment or other matters of a similar nature for the purpose of making a circulatory investment is strictly prohibited.

Minority interest

What are the regulatory requirements and restrictions on investors acquiring a minority interest in an insurance or reinsurance company?

Any change of investor whose equity interest is equal to or greater than 5 percent is subject to NFRA review and approval. In the event of such a transfer, the affected company must apply for approval within three months following the execution of the relevant equity transfer agreement. Additionally, in the case of a privately held insurance or reinsurance company, any change of investor whose equity interest is less than 5 percent must be reported to the NFRA within three months following the execution of the relevant equity transfer agreement, and must be publicly disclosed on the insurance company’s official website and other locations designated by the NFRA. Different shareholding requirements could be triggered by a minority acquisition depending on the identity of the acquirer and the nature of the target. For example, a domestic company could be converted into a foreign-invested company as a consequence of a minority acquisition by a foreign investor.

Foreign ownership

What are the regulatory requirements and restrictions concerning the investment in an insurance or reinsurance company by foreign citizens, companies or governments?

If the aggregate of foreign ownership interest in an insurance or reinsurance company is equal to or greater than 25 percent, the company will be classified as a foreign-invested company. Currently there is no foreign ownership cap on insurance and reinsurance companies. Foreign investment in such a company is subject to specific requirements that are principally grouped into the following general categories:

shareholder qualifications; and
NFRA approval.

Shareholder qualifications

Foreign and domestic investors are subject to differing shareholder qualification requirements.

A foreign shareholder holding an equity interest in a foreign-invested insurance or reinsurance company (i.e, a company wherein the equity interest held by domestic investors is not greater than 75 percent) must satisfy the following criteria as well as the respective criteria pertinent to the entity’s Shareholding Category:

They must be an insurance operating company or an insurance holding company, or other financial institutions licensed by their local financial regulators (but such financial institutions should not be the biggest shareholder of the foreign-invested insurance or reinsurance company).
They must have total assets of greater than US$5 billion as at the end of the year prior to application.
They must be subject to the effective regulation of the competent authorities of its home jurisdiction, which must employ a sound insurance regulatory system.
They must satisfy the solvency requirements of its home jurisdiction (or, for an insurance holding company that is not subject to local solvency requirement, its main insurance subsidiaries should be under the effective supervision of their respective home regulators. Main insurance subsidiaries refer to those insurance companies that are controlled or jointly controlled by the insurance holding companies, that are among the largest in terms of total assets as of the year end before the application, and that account for no less than an aggregate of 60 percent of the consolidated insurance assets of the insurance groups).
They must receive consent or non-objection opinion to the application from competent home jurisdiction regulatory authorities.
They must satisfy other conditions as prescribed by the NFRA.

A foreign investor of a domestic Chinese insurance or reinsurance company must satisfy the respective criteria pertinent to the entity’s shareholding category. In addition, the investor must satisfy the following criteria:

be an insurance operating company or an insurance holding company, or other financial institutions licensed by their local financial regulators;
have made profits during the preceding three consecutive fiscal years;
have total assets of not less than US$2 billion as at the end of the preceding year;
have a long-term credit rating issued by an international rating agency greater than ‘A’ (or its equivalent) for the three consecutive years preceding its application; and
satisfy regulatory requirements of local financial regulatory authorities.

NFRA approval

Group supervision and capital requirements

What is the supervisory framework for groups of companies containing an insurer or reinsurer in a holding company system? What are the enterprise risk assessment and reporting requirements for an insurer or reinsurer and its holding company? What holding company or group capital requirements exist in addition to individual legal entity capital requirements for insurers and reinsurers?

An insurance holding company may be established to exercise control over multiple insurance and reinsurance companies, insurance asset management companies, insurance intermediaries, non-insurance financial institutions and non-financial companies including service-sharing subsidiaries that provide services for the member companies of the insurance groups (including insurance group companies themselves and companies controlled, jointly controlled or subject to significant influence by them), and other non-insurance subsidiaries established by way of a major equity investment using insurance funds according to the regulatory rules of NFRA. The relationship between an insurance holding company and its subsidiaries is governed by the NFRA’s Supervisory and Administrative Measures for Insurance Group Companies, which specify limitations on stock pyramiding, cross-shareholding, senior officers holding concurrent positions in different entities within the same group, balance of investment in different types of entities, related transactions and other matters of a similar nature. An insurance holding company is required to closely monitor its subsidiaries with respect to various matters, including human resources, accounting and risk management; and file periodic and event-based reports with the NFRA. An insurance holding company as well as its insurance company subsidiaries must also satisfy the applicable solvency requirements.

Reinsurance agreements

What are the regulatory requirements with respect to reinsurance agreements between insurance and reinsurance companies domiciled in your jurisdiction?

Generally, Chinese law does not regulate the terms included in reinsurance contracts. However, some mandatory restrictions exist with respect to the risk ratios that a reinsurance company may accept under certain types of reinsurance contracts.

As opposed to regulation of reinsurance contracts, the NFRA focuses particular attention on the qualifications of the reinsurance companies. The NFRA imposes different qualification requirements, including solvency, rating, financial strength and similar criteria, on reinsurance treaty leaders, reinsurance treaty followers and facultative reinsurers, with the strictest standards being imposed on reinsurance treaty leaders. In addition, any reinsurance company engaging in reinsurance transactions with a Chinese insurance ceding company (domestic or foreign-invested) must first register in a specialized system sponsored and maintained by the NFRA, providing required information with regard to solvency, credit rating, financial strength and other relevant matters, whereupon each reinsurance company will be classified according to its assessed qualifications (e.g, treaty leader, treaty follower or facultative business).

Ceded reinsurance and retention of risk

What requirements and restrictions govern the amount of ceded reinsurance and retention of risk by insurers?

Each insurer is obliged to retain risk within parameters that are commensurate with its financial strength and business volume. The Chinese Insurance Law requires that the maximum insured amount for each risk unit that is to be retained by the insurer may not exceed 10 percent of the total of its actual capital and its capital reserves, and any liabilities exceeding this threshold must be ceded to reinsurers. In addition, the Chinese Insurance Law and NFRA rules require that the total insurance premiums retained by a P&C insurer for all of its business may not exceed a value that is equal to four times the total of its actual capital and its capital reserves.

In addition, the Administrative Measures on Reinsurance Business require that, other than insurance involving nuclear, aviation, petroleum or credit insurance, in the case of proportional reinsurance, the proportion for each risk unit ceded out by the direct insurer to a single reinsurer must not exceed 80 percent of the insured amount or covered liabilities assumed by the insurer.

Collateral

What are the collateral requirements for reinsurers in a reinsurance transaction?

Chinese law does not require a reinsurer to post collateral in a reinsurance transaction. However, in accordance with requirements prescribed under C-ROSS, if business is ceded by a Chinese insurer to an overseas reinsurer that is not licensed in China, the insurer in China will receive solvency credit less than the credit it may otherwise receive if its business were ceded to a reinsurer licensed in China, unless collateral is posted by the overseas reinsurer. An overseas reinsurer may provide a bank deposit or a standby letter of credit (SLOC) as collateral to guarantee the correlating reinsurance premiums receivable or reinsurance reserves receivable on the request of the insurer. With respect to bank deposit collateral, the funds must be deposited in an eligible Chinese commercial bank and must be available at the disposal of the ceding company. The funds cannot be returned to the reinsurer’s bank account within one quarter of the date of deposit unless the underlying reinsurance contract has previously been settled. With respect to SLOC collateral, the SLOC must be issued by a bank meeting certain criteria specified by the NFRA, or confirmed by such bank (meaning that the confirmation bank undertakes to honor or negotiate the SLOC supplemental to the undertakings of the issuing bank).

Credit for reinsurance

What are the regulatory requirements for cedents to obtain credit for reinsurance on their financial statements?

Cedents must adhere to generally accepted accounting principles in connection with reinsurance business as well as the requirement prescribed under C-ROSS to classify assets and liabilities in its financial statements. The Chinese Accounting Standards for Enterprises No. 25 – Insurance Contracts set out the rules governing accounting for reinsurance contracts.

Insolvent and financially troubled companies

What laws govern insolvent or financially troubled insurance and reinsurance companies?

An insolvent insurance or reinsurance company is subject to the Chinese Bankruptcy Law as well as the Chinese Insurance Law. According to the Chinese Insurance Law, when an insurance company or a reinsurance company becomes insolvent, the company or any of its creditors may, on the NFRA’s approval, apply to a competent court for restructuring, reconciliation or bankruptcy liquidation of the company. Alternatively, the NFRA may apply to a competent court for restructuring or bankruptcy liquidation of the company. However, as at the time of writing, except that Yi’an P&C Insurance Co, Ltd was approved by the NFRA to conduct a bankruptcy reorganization (which was later sold to BYD Automobile and the bankruptcy reorganization was completed accordingly), no Chinese insurance or reinsurance company has ever been subject to a formal bankruptcy proceeding as described by the Bankruptcy Law and the Insurance Law, and, accordingly, the rule has been rarely tested. To minimize the risk of insolvency, the NFRA may impose a series of supervisory measures on any financially troubled insurance or reinsurance company. In 2021, the NFRA promulgated the Interim Measures on the Implementation of the Recovery and Resolution Plans of Banking and Insurance Institutions, which govern the handling of certain major risk events of banking and insurance institutions. In late 2022, the Standing Committee of the National People’s Congress circulated a draft Financial Stability Law for public comment, which is intended to be an overarching statute for financial risk handling.

Claim priority in insolvency

What is the priority of claims (insurance and otherwise) against an insurance or reinsurance company in an insolvency proceeding?

According to the Chinese Insurance Law, when an insurance company is declared bankrupt, after the payment of administrative expenses and debts incurred for the common benefit of the creditors, the remaining assets of the company will be applied in the following order:

wages and salaries, as well as certain prescribed employee benefits;
indemnity or payment of insurance benefits;
social insurance fees other than those prescribed in item (1) and unpaid taxes; and
claims of general creditors.

A class of creditors will not be paid unless all of the creditors of higher priority classes have been paid in full. If the remaining assets are insufficient to pay a certain class of creditors in full, those assets will be distributed on a pro rata basis to the members of that class. Claims against an insurance or reinsurance company are typically classified as the claims of general creditors.

Intermediaries

What are the licensing requirements for intermediaries representing insurance and reinsurance companies?

Insurance intermediaries in China comprise the following:

insurance agency companies (including professional insurance agency companies and part-time insurance agency companies);
insurance brokerage companies; and
insurance adjusters.

An insurance agency license, once issued, will remain effective indefinitely and no license renewal will be required. In addition, a broker engaging in reinsurance transactions with a Chinese insurance company, even if licensed by the NFRA, must also register in a specialized system sponsored and maintained by the NFRA.

Insurance agency companies

Insurance agency companies distribute insurance products, collect insurance premiums and conduct insurance claim investigations on behalf of insurance companies. Among other licensing requirements, a nationwide professional insurance agency company must have a minimum registered capital of 50 million yuan, while a regional professional insurance agency company must have a minimum registered capital of 20 million yuan. The registered capital must be derived from its own equity and placed under the supervision of a qualified bank. A professional insurance agency company intending to conduct business beyond the territorial limits of its domicile first must establish a branch in each relevant province. With respect to a professional insurance agency company established prior to 27 April 2013 with a registered capital of less than 50 million yuan, such company is only permitted to establish a branch within its domiciliary province or in a province where it has previously established a branch, unless its registered capital is increased to 50 million yuan or greater. The status of regulatory guidance governing part-time insurance agency companies with respect to license holders and related matters is relatively fluid, as compared with the regulations governing professional insurance agency companies.

Insurance brokerage companies

Insurance brokerage companies provide insurance broking services for the benefit of policyholders under direct insurance contracts, or for the benefit of direct insurance companies under reinsurance contracts. Among other licensing requirements, an insurance brokerage company must have a minimum registered capital of 20 million yuan. However, to conduct its business on a nationwide basis, such company must have a minimum registered capital of 50 million yuan. The registered capital must be derived from the company’s own equity and placed under the supervision of a qualified bank. However, an overseas insurance broker in a WTO member without a license from the NFRA is also allowed to conduct cross-border brokerage transactions of large commercial risks, international insurance of marine, aviation and transports, and reinsurance with Chinese insurance companies.

Insurance adjusters

An insurance adjuster only needs to complete a record filing with the NFRA before conducting any business. An insurance adjuster must have a minimum registered capital of 1 million yuan (unless otherwise approved by the NFRA). However, to conduct business on a nationwide basis, such company must have a minimum registered capital of 2 million yuan. The capital of an insurance adjuster is not required to be paid in as at the commencement of operations.

INSURANCE CLAIMS AND COVERAGE

Third-party actions

Can a third party bring a direct action against an insurer for coverage?

A third party can bring a direct action against an insurer for liability insurance coverage if the insured’s liability has been finally determined (through either admission by the insurer, or final adjudication by a competent court or arbitration) and the insured has failed to actively request that the insurer indemnify the third party.

Late notice of claim

Can an insurer deny coverage based on late notice of claim without demonstrating prejudice?

The Chinese Insurance Law provides that a policyholder, an insured or a beneficiary must notify an insurer of the occurrence of an insured loss in a timely manner. If notification of the occurrence of the loss is delayed, either intentionally or as the result of gross negligence, and the delay prejudices the ability of the insurer to ascertain the nature, cause or extent of a claimed loss, the insurer may deny such uncertain part of the loss, so long as the insurer did not have actual or constructive knowledge of the occurrence of the loss.

The Insurance Law also requires that the right to claim for insurance payment must be exercised within two years (for non-life insurance) or five years (for life insurance), of the date when an insured or a beneficiary knew or should have known of the occurrence of the loss.

Wrongful denial of claim

Is an insurer subject to extra-contractual exposure for wrongful denial of a claim?

In the case of wrongful denial of a claim, a claimant may file a complaint with the National Financial Regulatory Administration (NFRA), which may investigate and impose administrative penalties. The Chinese Insurance Law provides that if an insurer wrongfully denies an indemnity obligation as agreed in an insurance contract, the NFRA may order the insurer to rectify and impose a fine ranging from 50,000 to 300,000 yuan. If the circumstances are found to be serious, the NFRA may impose certain restrictions on the permissible scope of business for the insurer, order the insurer to cease accepting new business or even suspend its insurance business license. The NFRA may also issue a warning to responsible persons within the insurer and, if the circumstances are found to be serious, the NFRA may impose fines ranging from 10,000 to 100,000 yuan on the responsible individuals or revoke approval of the persons’ qualifications.

Defense of claim

What triggers a liability insurer’s duty to defend a claim?

A liability insurer does not have a duty to defend a claim unless it is provided for in the insurance contract. Pursuant to the Chinese Insurance Law, unless otherwise provided in the insurance contract, if a third party claims for damages against an insured party of a liability insurance contract for a matter falling within the scope of insurance coverage by means of arbitration or litigation, and loss or damage has been suffered by the third party, the insurer must reimburse the costs of such proceedings and other necessary and reasonable expenses paid by the insured.

Indemnity policies

For indemnity policies, what triggers the insurer’s payment obligations?

An insurer’s indemnification obligation is determined by the effective terms and conditions of an insurance contract. Pursuant to the Chinese Insurance Law, an insurer must examine claims in a timely manner and determine whether the claims are allowable. If the insurer determines that any portion of a claim falls within the scope of coverage, it must notify the claimant and seek to reach an agreement with the claimant on the allowable payment. Unless otherwise provided in the insurance contract, within 10 days of the date of the payment agreement, the insurer must make the payment. However, if the insurer determines that no portion of the claim falls within the scope of coverage, within three days it must notify the insured or beneficiary. The Insurance Law also provides that, if the total loss cannot be determined by existing evidence, an insurer remains obligated to effect such primary payment as can be determined within 60 days of receipt of the substantiating evidence, and the insurer is obligated to pay the outstanding payments after they are determined.

Incontestability

Is there a period beyond which a life insurer cannot contest coverage based on misrepresentation in the application?

Pursuant to the Chinese Insurance Law, an insurer may not contest coverage based on a misrepresentation in the insurance application:

after 30 days from the date when the insurer has actual or constructive knowledge that the insured made an intentional or grossly negligent misstatement of fact that is material to the insurer’s underwriting decisions; or
after two years from the date of the insurance contract that included the material misrepresentation.

Punitive damages

Are punitive damages insurable?

Punitive damages have been adopted in China to a limited degree, and only for certain subjects. There is no statutory rule as to whether punitive damages are insurable; however, in the current market, punitive damages are usually excluded from the coverage of an insurance contract.

Excess insurer obligations

What is the obligation of an excess insurer to ‘drop down and defend’, and pay a claim, if the primary insurer is insolvent or its coverage is otherwise unavailable without full exhaustion of primary limits?

The obligation of an excess insurer in the context of insolvency or other circumstances, when primary insurer coverage is unavailable, has not received meaningful attention with respect to legislation, litigation or judicial interpretation in China.

With respect to an insolvency scenario in the case of a life insurance company, pursuant to the Chinese Insurance Law, if a life insurer declares bankruptcy, it has an obligation to assign its life insurance contracts and liability reserve funds to another qualified life insurer. If the life insurer is unable to reach an agreement with another qualified life insurer, the NFRA may designate a life insurer to assume the relevant life insurance contracts and liability reserve funds. Accordingly, an excess insurer of a life insurer would have no obligation to ‘drop down and defend’, even if the original primary insurer is insolvent, because another life insurer will have assumed the liability. However, as at the time of writing, except that Yi’an P&C Insurance Co, Ltd was approved by the NFRA to conduct a bankruptcy reorganization (which was later sold to BYD Automobile and the bankruptcy reorganization was completed accordingly), no Chinese insurance or reinsurance company has ever been subject to a formal bankruptcy proceeding as described by the Bankruptcy Law and the Insurance Law, and, accordingly, the rule has been rarely tested.

With respect to an insolvency situation in the case of non-life insurance company and with respect to other scenarios, courts will enforce the effective agreement of the parties to a contract. Accordingly, courts will likely enforce the express terms of a contract, which provides for an obligation for an excess insurer to drop down and defend, regardless of whether a primary insurer pays to the full extent of the primary coverage. In the absence of such express contractual provisions, the outcome would be uncertain.

Self-insurance default

What is an insurer’s obligation if the policy provides that the insured has a self-insured retention or deductible and is insolvent and unable to pay it?

This question becomes relevant only where insurance coverage is granted in relation to a third party, namely, where the policyholder or the insured is liable for damages suffered by another party. Where the policyholder or the insured’s own risk is insured, the insurer will provide indemnification for an amount exceeding the deductible or self-insured retention according to the terms of the insurance contract, regardless of whether the policyholder or insured is insolvent.

Although a deductible and a self-insured retention have different meanings, such different meanings do not result in different obligations under the policy. In liability insurance, where the insurer covers the third party’s claim against the policyholder or insured, if the policyholder or the insured is unable to pay the claim, the third party has the right to enforcement against the insurer, but the insurer’s obligation would be limited to pay indemnity above the deductible and self-retention as provided in the insurance contract. However, with respect to other insurance, if the policy provides that the insured has a self-insured retention or deductible but is unable to pay it, the obligation of the insurer will depend on the terms of the insurance contract.

Claim priority

What is the order of priority for payment when there are multiple claims under the same policy?

The order of priority for payment where there are multiple claims under the same contract has not received meaningful attention with respect to legislation, litigation or judicial interpretation in China. Courts will enforce the effective agreement of the parties to a contract. In the absence of such contractual provisions, the outcome would be uncertain.

Allocation of payment

How are payments allocated among multiple policies triggered by the same claim?

If a loss or claim is covered by multiple policies, the principle governing allocation of indemnity obligations among multiple insurers will differ depending on whether the policies are life policies or property and casualty (P&C) policies. If a loss or claim is covered by different life policies, each insurer must pay indemnification according to the terms and conditions of the policies, and there are no restrictions under Chinese law as to the total amount that the different insurers would pay for such loss or claim. However, if a loss or claim is covered by multiple P&C policies, the actual total insurance payment by the insurers may not exceed the total loss amount. Accordingly, if the total insurance coverage under multiple P&C insurance contracts does not exceed the total loss, each insurer must pay indemnification according to the terms and conditions of the policies. However, if the total insurance coverage under multiple P&C insurance contracts exceeds the total loss, unless otherwise provided in the insurance contract, an insurer’s liability for indemnification is calculated in proportion to its respective insurance coverage as a percentage of the total coverage amount.

Disgorgement or restitution

Are disgorgement or restitution claims insurable losses?

Whether disgorgement claims are insurable has not received meaningful attention with respect to legislation, litigation or judicial interpretation in China; however, courts will enforce the effective agreement of the parties to a contract.

With respect to restitution claims, pursuant to the Chinese Insurance Law, to the extent that restitution constitutes compensation for a third party’s losses, liability insurance may provide indemnification when the losses are recognized by an insurer or a court. With respect to other restitution claims, whether they are insurable also has not received meaningful attention with respect to legislation, litigation or judicial interpretation.

Definition of occurrence

How do courts determine whether a single event resulting in multiple injuries or claims constitutes more than one occurrence under an insurance policy?

Chinese law does not specify in what circumstances a single event resulting in multiple injuries or claims constitutes more than one occurrence under an insurance contract. Accordingly, consistent with the Chinese Civil Code, courts are likely to interpret the scope of ‘occurrence’ with reference to its definition and the express usage within the insurance contract, as well as the principle of good faith.

Rescission based on misstatements

Under what circumstances can misstatements in the application be the basis for rescission?

Pursuant to the Chinese Insurance Law and its interpretations, upon a request from the insurer, a policyholder must truthfully disclose information in connection with the insured subject or the insured and, if a policyholder intentionally or out of gross negligence, makes a misstatement that is material to an insurer’s underwriting, the insurer may rescind the insurance contract. As an example, the Insurance Law expressly provides that if a policyholder of a life insurance contract falsely states an insured’s age and that age does not fall within the age limits specified by the contract, the insurer may rescind the insurance contract. In these circumstances, the insurer has 30 days from the date when it has actual or constructive knowledge of the misstatement to rescind the contract. Regardless of knowledge, an insurer may not contest coverage based on the misrepresentation after two years from the date when such an insurance contract has been entered into. However, the Insurance Law also provides that if an insurer has actual or constructive knowledge that an insured has made an intentional or grossly negligent misstatement of the information requested by the insurer at the time when parties enter into an insurance contract, an insurer may not rescind the insurance contract for the misstatement.

REINSURANCE DISPUTES AND ARBITRATION

Reinsurance disputes

Are formal reinsurance disputes common, or do insurers and reinsurers tend to prefer business solutions for their disputes without formal proceedings?

Formal reinsurance disputes are not very common. Insurers and reinsurers in China generally prefer business solutions as the primary means to resolve their disputes, without resorting to litigation or arbitration. As a civil law jurisdiction, decisions of Chinese courts generally do not have precedential effect. However, insurers and reinsurers may consult published court decisions as a general reference on substantive issues.

Common dispute issues

What are the most common issues that arise in reinsurance disputes?

To the extent that reinsurance disputes have been adjudicated in the Chinese court system, common issues that have arisen typically involved contractual terms such as:

a reinsurer’s liability under a reinsurance contract for interest in the event of delayed payment to an insured;
allocation of liability as between insurer and reinsurer;
late notice of claims; and
other major contractual terms.

Arbitration awards

Do reinsurance arbitration awards typically include the reasoning for the decision?

Pursuant to the Chinese Arbitration Law, unless the parties to an arbitral award agree otherwise, an arbitral award must state the reasoning for the decision. This rule applies to any arbitral award, including reinsurance arbitral awards issued by a tribunal located within China (e.g, the China International Economic and Trade Arbitration Commission).

Power of arbitrators

What powers do reinsurance arbitrators have over non-parties to the arbitration agreement?

Generally, under Chinese law, arbitrators do not have power over non-parties to an arbitration agreement. However, pursuant to the Arbitration Law, an arbitral tribunal may independently gather evidence, and may request witnesses to provide relevant materials and attend arbitration proceedings.

Appeal of arbitration awards

Can parties to reinsurance arbitrations seek to vacate, modify or confirm arbitration awards through the judicial system? What level of deference does the judiciary give to arbitral awards?

Pursuant to the Chinese Arbitration Law, an arbitral award will be legally effective as of the date on which it is made. However, within six months of the date of receipt of the award, any party to the arbitration may petition the intermediate people’s court where the arbitration commission is located to vacate the award. To prevail, the party must demonstrate that:

there was no arbitration agreement between the parties;
the matters in question fall outside of the arbitration agreement or beyond the power of the arbitration commission;
the composition of the members of the arbitral tribunal or the procedure of the arbitration violated required legal procedure;
the evidence on which the award was based has been forged;
the counterparty concealed evidence that could materially affect fair arbitration; or
the arbitrators solicited or accepted bribes, committed illegalities for personal gain or perverted the law.

The judiciary will give substantial deference to arbitral awards. Although courts may vacate or confirm arbitral awards, neither the Chinese Arbitration Law nor the record of court decisions reflect an obvious inclination or capacity to modify an arbitral award. However, pursuant to the Chinese Arbitration Law, the arbitral tribunal has the right to modify an award in the case of an error in calculation or wording, or an omission.

With respect to a foreign-related arbitration (i.e, an arbitration in China that has a foreign nexus), pursuant to the Chinese Civil Procedure Law, the competent court may vacate an arbitral award under specified circumstances. As an example, if the enforcement target can demonstrate that it either has not been provided notice with respect to the appointment of an arbitrator or for the inception of the arbitration proceedings, or was unable to present its case owing to causes for which it is not responsible, the court typically would vacate the arbitral award. Additionally, the court would also vacate the arbitral award for the same reasons as noted in the first three bullet points above.

Additionally, with respect to an award by a non-Chinese arbitral tribunal, the Chinese Civil Procedure Law provides that if any party to an arbitration by a foreign arbitral tribunal requires recognition and enforcement by a Chinese court, the party may petition the intermediate people’s court with territorial jurisdiction over the target party, or where the party’s property is located, to enforce the award. The judiciary will give substantial deference to an arbitral award and enforce a non-Chinese arbitral award in accordance with international treaties concluded or acceded to by China, or in accordance with the principle of reciprocity. China is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.

REINSURANCE PRINCIPLES AND PRACTICES

Obligation to follow cedent

Does a reinsurer have an obligation to follow its cedent’s underwriting fortunes and claims payments or settlements in the absence of an express contractual provision? Where such an obligation exists, what is the scope of the obligation, and what defenses are available to a reinsurer?

The Administrative Regulations on Reinsurance by P&C Insurers provide that a claim payment should follow the principle of ‘follow-the-fortunes’, meaning that as long as the claim falls within the coverage of the reinsurance contract, the cedent’s decisions on claims will apply to the reinsurer. Other than the above, there are no statutory requirements under Chinese law. However, unless otherwise provided in the insurance contract, market practice is to follow the cedent’s underwriting fortunes for claims payments or settlements to the extent that the claims fall within the scope of the reinsurance contract and the cedent has handled the claims and settlements in good faith.

Good faith

Is a duty of utmost good faith implied in reinsurance agreements? If so, please describe that duty in comparison to the duty of good faith applicable to other commercial agreements.

The Chinese Insurance Law requires that all parties to an insurance activity must act in good faith during the performance of their rights and obligations. The Administrative Measures on Reinsurance Business also provide that all insurers, insurance consortiums and insurance brokers must comply with the principles of prudence and utmost good faith when handling reinsurance business. The Chinese Contract Law also requires that parties to a contract act in good faith during the performance of their rights and obligations. The duty of good faith, therefore, is implied in all contracts, including reinsurance contracts; however, the duty of utmost good faith is not a well-recognized concept under relevant Chinese law.

Facultative reinsurance and treaty reinsurance

Is there a different set of laws for facultative reinsurance and treaty reinsurance?

There are no separate sets of laws in China governing facultative and treaty reinsurance; however, recipients in facultative and treaty reinsurance arrangements are subject to different rating, capital and other qualification requirements.

Third-party action

Can a policyholder or non-signatory to a reinsurance agreement bring a direct action against a reinsurer for coverage?

The Chinese Insurance Law provides that a policyholder or beneficiary is precluded from bringing a direct action against a reinsurer for indemnity or insurance benefits.

Insolvent insurer

What is the obligation of a reinsurer to pay a policyholder’s claim where the insurer is insolvent and cannot pay?

The Chinese Insurance Law provides that a policyholder or beneficiary is precluded from bringing a direct action against a reinsurer for indemnity or insurance benefits. Accordingly, even if a cedent is insolvent and cannot pay, a policyholder may not raise a claim against the reinsurer. On the approval of the National Financial Regulatory Authority, in accordance with the Chinese Bankruptcy Law, the cedent may petition the competent court for a declaration of bankruptcy. If a cedent is declared bankrupt, the reinsurance coverage to be provided by the reinsurer will become part of the cedent’s bankruptcy estate, and the insured or the beneficiary may become an unsecured creditor of the cedent pursuant to the bankruptcy process. However, as at the time of writing, no Chinese insurance or reinsurance company has ever been subject to a formal bankruptcy proceeding as described by the Bankruptcy Law and the Insurance Law, and, accordingly, the rule has not yet been tested.

Notice and information

What type of notice and information must a cedent typically provide its reinsurer with respect to an underlying claim? If the cedent fails to provide timely or sufficient notice, what remedies are available to a reinsurer and how does the language of a reinsurance contract affect the availability of such remedies?

There are no specific requirements under Chinese law applicable to the notice and information to be provided by a cedent to its reinsurer under a reinsurance contract. Accordingly, the type and information that a cedent must provide to a reinsurer with respect to an underlying claim, and the available remedies, will be subject to the terms and conditions of the reinsurance contract. A reinsurance contract typically may require timely delivery of all material claim-related information, including the facts, claim, loss assessment or estimated amount of loss, as well as relevant supporting documentation. Accordingly, pursuant to the agreed terms of the reinsurance contract, a reinsurer may have a basis to deny indemnification to a cedent under specified circumstances.

Allocation of underlying claim payments or settlements

Where an underlying loss or claim provides for payment under multiple underlying reinsured policies, how does the reinsured allocate its claims or settlement payments among those policies? Do the reinsured’s allocations to the underlying policies have to be mirrored in its allocations to the applicable reinsurance agreements?

For the principle of payment allocation in the case of multiple direct insurance policies. Chinese law does not require a reinsurance contract to mirror the above allocation principle. Reinsurers bear liabilities with respect to the insurers based on the terms of the reinsurance contracts.

Review

What type of review does the governing law afford reinsurers with respect to a cedent’s claims handling, and settlement and allocation decisions?

Chinese law does not provide for a general right of review of a cedent’s claims handling, or settlement and allocation decisions. However, a reinsurance contract may provide for such review rights.

Reimbursement of commutation payments

What type of obligation does a reinsurer have to reimburse a cedent for commutation payments made to the cedent’s policyholders? Must a reinsurer indemnify its cedent for ‘incurred but not reported’ claims?

There are no statutory requirements imposing an obligation on a reinsurer to reimburse a cedent for commutation payments made to the cedent’s policyholders. Accordingly, the obligation would be governed by the terms and conditions of the reinsurance contract.

Extracontractual obligations (ECOs)

What is the obligation of a reinsurer to reimburse a cedent for ECOs?

There are no statutory requirements imposing an obligation on a reinsurer to reimburse a cedent for ECOs. Accordingly, such obligation would be governed by the terms and conditions of the reinsurance contract. It is not unusual for reinsurance contracts to expressly relieve reinsurers from obligations to reimburse cedents for ECOs.

UPDATES & TRENDS IN INSURANCE AND REINSURANCE IN CHINA

Key developments

Are there any emerging trends or hot topics in insurance and reinsurance regulation in your jurisdiction?

Formal Transition from the China Banking and Insurance Regulatory Commission to the National Financial Regulatory Authority

In March 2023, the Chinese government announced a series of institutional reforms of the central government authorities including the formation of National Financial Regulatory Authority (NFRA), which is to replace the former China Banking and Insurance Regulatory Commission as the Chinese insurance industry regulator.

Amended Chinese Company Law

On 30 December 2023, the Standing Committee of the National People’s Congress, the Chinese legislature, adopted a wide-ranging amendment to the Chinese Company Law, which will take effect on 1 July 2024. It is yet to be observed how the NFRA will amend and adjust the relevant insurance regulatory rules in response to the amended Company Law.

Some of the significant changes are summarized as follows:

Employee representative director. A company with 300 or more employees should have at least one employee representative on its board of directors, who should be democratically elected by its employees via the employee representative congress, employee congress or by other means, unless the company has established a board of supervisors with at least one employee representative.
One-tier board structure allowed; employee representative director may be required. Qualified companies may choose not to have a board of supervisors or any supervisor at all, but for the audit committee of the board of directors to exercise the functions of the board of supervisors.
Legal representative. The amended Company Law no longer limits the legal representative to chairman and general manager, and a director who handles corporate affairs on behalf of the company can also serve as the legal representative. If a director or the general manager who serves as the legal representative resigns, the person should be deemed to have resigned from the legal representative position simultaneously. When the legal representative resigns, the company should appoint a new legal representative within 30 days thereafter.
Duty of loyalty and duty of diligence. The amended Company Law newly defines the duty of diligence to be the duty to exercise reasonable care normally expected of managers in the best interests of the company when performing their duties, and defines the duty of loyalty to be the duty to take measures to avoid conflicts of interest between the person and the company, and not to seek improper interests by taking advantage of his or her position. The amended Company Law has also set out certain circumstances under which the compensation liability of a director, supervisor or senior management personnel will arise.
Obligations of controlling shareholders and actual controllers. The amended Company Law strengthens the concept of ‘look-through review’ in order to hold controlling shareholders and actual controllers accountable for damages to the interests of the company. A shareholder/actual controller will bear the duty of diligence and the duty of loyalty towards the company if it becomes a shadow director; and can be held jointly and severally liable for instructing a director or senior management member to take any action that damages the interests of the company or shareholders.
Requirements for actual capital contribution. The registered capital of a limited liability company should be fully paid in accordance with the company’s articles within a maximum period of five years after the company’s establishment, unless any laws, administrative regulations or decisions of the State Council have provided otherwise for actual capital contribution, minimum capital and time limits, in which case such provisions should prevail. The registered capital of a joint stock company should be fully paid upon its establishment.
A joint stock company may issue different classes of shares. A joint stock company may issue different classes of shares that are different from ordinary shares in terms of priority over distribution of profits or residual assets, voting rights, transfer restrictions or otherwise as specified by the State Council.

* The information in this chapter was accurate as of April 2024.

If you need more consulting, please Contact Us at TNHH NT International Law Firm (ntpartnerlawfirm.com)

You can also download the .docx version here.

Rate this post

“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”

LEGAL CONSULTING SERVICES

090.252.4567

HÃY CLICK ĐỂ LẠI SĐT CHÚNG TÔI SẼ GỌI NGAY CHO BẠN MIỄN PHÍ

NT INTERNATIONAL LAW FIRM

Email: info@ntpartnerlawfirm.com – luatsu.toannguyen@gmail.com
Phone: 090 252 4567
Address: B23 Nam Long Residential Area, Phu Thuan Ward, District 7, Ho Chi Minh City, Vietnam