Insurance service suppliers

On December 13 2011 the governments of China and the Hong Kong Special Administrative Region reached an agreement on enhancing economic and trade cooperation and exchanges under the Closer Economic Partnership Arrangement (CEPA). A change to the investment threshold for Hong Kong insurance brokers represents a significant business opportunity for the Hong Kong industry.


CEPA is a free trade agreement between China and Hong Kong. It offers Hong Kong products, companies and residents preferential access to the Chinese market. CEPA is not a closed agreement and both sides hold regular meetings on further concessions and the details for implementation. Under its provisions, Hong Kong service suppliers benefit from liberalised market access in a wide range of service sectors ahead of China's liberalisation schedule under its World Trade Organisation obligations. Individuals and legal persons can qualify as Hong Kong service suppliers. In order to be eligible for a benefit, a Hong Kong individual must be a permanent resident of Hong Kong and, in some cases, also a Chinese national. A 'legal person' includes any form of organisation including a corporation, trust, partnership, joint venture, sole proprietorship or association. A number of criteria apply to such entities.

Insurance services suppliers

Under the previous rules, Hong Kong insurance companies were allowed to form groups through regrouping or strategic mergers to enter the Chinese market. However, the hurdles to doing so were huge. Would-be entrants were required to meet market access conditions such as:

  • total assets of more than US$5 billion;
  • at least 30 years' operational experience; and
  • the establishment of a representative office in China for at least two consecutive years.

Foreign insurance companies were required to have assets of more than US$200 million. Consequently, most companies were not qualified to establish foreign-invested broking firms and could acquire only a shareholding of under 25%, which posed a number of management and operational issues. In any event, such a foreign-invested broker (ie, a broker with a foreign shareholding of over 25%) remained restricted to a limited scope of business, including large-scale commercial risk insurance, reinsurance and international marine, aviation and transport insurance.

This affected Hong Kong insurers in a number of ways. For example, in China, foreign-owned insurers could sell commercial auto insurance, but were prohibited from selling third-party liability motor insurance, which is mandatory. As consumers generally will not buy compulsory and commercial insurance from two different insurers, the restriction effectively blocked foreign companies from the Rmb300 billion auto insurance market. Foreign companies generally have a limited number of branches and sub-branches that are essential for effective direct distribution of personal lines products.


With effect from April 1 2012, Supplement VIII to CEPA lowers the investment threshold and allows Hong Kong insurance brokerage companies to establish wholly owned insurance agency companies in Guangdong province (including Shenzhen) on a pilot basis, to sell insurance on behalf of insurance companies. A number of conditions apply:

  • The place of operation must be Guangdong province (including Shenzhen) and the applicant must have been operating insurance brokerage businesses in Hong Kong for more than 10 years;
  • The average annual business revenue for the past three years before application must be no less than HK$500,000 and the total assets at the end of the year before application must reach the same threshold;
  • A company must have no record of serious misconduct and disciplinary action for the three years preceding the application; and
  • The applicant must have established a representative office in China for more than one year.


The new rule lowers the investment threshold for Hong Kong brokers and enables them to enter the Chinese insurance market as agency firms that can sell insurance on behalf of insurance companies.

This development should create enormous business potential for Hong Kong broking firms. Small-sized insurance brokerages can establish agency operations in the Guangdong market at substantially lower entry thresholds. Foreign companies generally have a limited number of branches and sub-branches that are essential for effective direct distribution of personal lines products. These companies will have greater dependence on the agency market. With the introduction of the new supplement, Hong Kong brokerages can engage in agency business related to business and general insurance, as well as reinsurance. Many Hong Kong brokerages are expected to benefit from this CEPA provision. As of September 30 2011, there were 585 authorised insurance brokers and 36,150 appointed insurance agents in Hong Kong (further divided into 2,366 insurance agencies and 33,784 individual agents). As of the end of December 2011, there were nine approved Hong Kong service supplier applications for the sector of insurance and insurance-related services.

The new rule gives Hong Kong brokers an opportunity to take a larger share of the Chinese insurance market. In addition, potentially wholly owned subsidiaries established by Hong Kong agencies can provide agency services for Chinese-admitted insurers under conditions no less favourable than those applied to domestic agencies.

The China Insurance Regulatory Commission and its local office in Guangdong are expected to release relevant application procedures to address remaining issues.

For further information on this topic please contact Kevin Bowers at Howse Williams Bowers by telephone (+852 2803 3688), fax (+852 2803 3608) or email ([email protected]).