China Insurance Regulatory Commission (“CIRC”) has raised the ownership ceiling for domestic investors in insurers from 20% to 51%, potentially paving the way for cash-strapped insurers to raise capital.
Insurers, including market leader China Life Insurance Co. Ltd, have seen their profits decline due to the slowing economy and investment losses incurred from a sluggish stock market. Many insurers have an urgent need for more capital, but there is a limit to how much they can raise through the debt markets.
The changes aim to encourage strategic investment, improve corporate governance and promote steady development. It is thought that by increasing the investment limit and allowing shareholders in the country’s insurers to own stakes as much as 51%, this may attract strategic investors and boost the industry’s capital strength. The combined holdings of a single investor and its affiliated parties can exceed 20% if the investor has held a stake in the insurer for more than 3 years and has RMB10 billion (US$1.6 billion) of total assets. In addition, investors will not be allowed to sell the shares for a period of 3 years.
It is hoped that loosening equity holding restrictions on Chinese insurers may help companies attract strategic investors, enhance shareholder responsibilities and improve the efficiency of corporate governance. The rule changes will make it easier for insurers to seek capital from existing shareholders.