On April 9, 2013, the China Insurance Regulatory Commission (“CIRC”) issued a notice amending the Measures for Administration of Equity in Insurance Companies to eliminate the long-standing 20 percent ceiling on investment in Chinese insurance companies that have been established for at least three years. The previous limit has been replaced by a new ceiling of 51%, inclusive of equity owned by an investor’s affiliates. Investments in excess of 20% are subject to a three-year lock-up period. According

to the notice, the changes have been made in order to improve the corporate governance of Chinese insurance companies and provide for their development, presumably by making it easier for them to attract investment.

The new investment ceiling does not change the application of the existing regime for foreign invested insurance companies (“FIIC”) and in particular it does not change the cap on foreign investment in life insurance companies, which remains at 50%. The FIIC regime specifically governs insurance companies with 25% or more foreign investment and is generally viewed as more restrictive than the legal and regulatory regime that applies to domestic Chinese companies, which have less than 25% or no foreign investment.

In practice, the amendments mean that qualifying Chinese investors can invest in up to 51% and qualifying foreign investors can invest in up to 24.9% of the equity of a domestic insurance company. If foreign investment exceeds 24.9%, the insurance company will convert to become a FIIC and will be subject to the legal and regulatory regime applicable to FIICs. Conversions of domestic insurance companies to FIICs were possible before the current amendments, but so far there have been very few examples of conversions.

Separately, on April 17, 2013, CIRC issued the Notice on Issues Concerning Standardizing Investment in Insurance Companies by Limited Partnership Equity Investment Enterprises, specifically permitting domestic and foreign investment by limited partners of private equity funds in domestic Chinese insurance companies, but not in FIICs. Individual qualified private equity investors can invest in up to 5% of the equity of domestic insurance companies, which are limited to 15% total private equity investment. Private equity investors are prohibited from participating in the management of insurance companies and from being the largest single or controlling shareholder. CIRC’s intention is to broaden the sources of capital available to insurance companies, while at the same time ensuring that private equity investments do not create any instability.

It is probable that CIRC will take further initiatives regarding the capitalization of insurance companies and in particular life insurance companies in the future.