Draft Amendment to the Insurance Law of the People's Republic of China

As China's economy has grown, its insurance industry has also rapidly expanded and become an increasingly importantly important part of that growing economy. The laws governing the nation's insurance industry, however, have not fully reflected that growth—and change—particularly in how insurance companies are allowed to invest funds. Another commonly cited problem is how Chinese law treatts intermediaries such as insurance agents and insurance assessment firms.

The Standing Committee of the National People's Congress completed its first reading of the Draft Amendment to the Insurance Law of the People's Republic of China (Draft Insurance Law Amendment) on August 29, 2008. Major changes contained in the Draft Insurance Law Amendment are summarized below.

• The proposed law significantly expands the types of investment vehicles in which insurance companies will be allowed to invest their funds. Under present law, insurance companies can invest only in Chinese treasury bonds and Chinese government agency bonds. As currently written, the Draft Insurance Law Amendment allows insurance companies to invest in marketable securities, including bonds, stocks and securities investment funds. The proposed law also permits insurance companies to invest their funds in real estate.
• The Draft Insurance Law Amendment provides that an insurance company can take the form of a limited liability company, while existing law provides that insurance companies may only be in the form of a joint stock limited company or solely state-owned company.
• The Draft Insurance Law Amendment also adds conditions that must be met by a "major shareholder" of an insurance company: It must be continuously profitable; have a good reputation, with no record of material irregularities or illegalities within the most recent three years; and have no less than RMB 200 million in net assets. While the law does not specifically define "major shareholder," it seems likely that this term would be interpreted to mean 5 percent or more of shares or equity in a company.
• The Draft Insurance Law Amendment tightens requirements for the paid-in capital of an insurance company. Under existing law, RMB 200 million of an insurance company's registered capital must be paid-in capital. The draft would require all registered capital to be paid-in capital.
• The Draft Insurance Law Amendment imposes restrictions on the qualifications of directors, supervisors and senior managers of an insurance company. The amendment provides that no individual can serve as a director, supervisor or senior manager of an insurance company if he has been disqualified from serving in that capacity for a financial institution (such as a bank or an insurance company) in the preceding five years due to a violation of law or regulation; or if he has had his license to practice as a professional (such as lawyer or accountant) revoked.
• The Draft Insurance Law Amendment also changes how insurance intermediaries are treated. The proposed law clarifies that non-dedicated insurance agencies are indeed to be considered (and regulated as) insurance agencies, and insurance assessment firms are also insurance intermediaries. In the case of individual agents, the Draft Insurance Law Amendment removes requirements in existing law that an individual agent must obtain the insurance agency business permit; register with the administration for industry and commerce and obtain a business license; and either pay a guarantee deposit or purchase professional liability insurance.