The China Insurance Regulatory Commission (“CIRC”) released the Administration of Equity Participation in Insurance Companies Measures (the "Draft Measures") for comments in August 2007. The Draft Measures govern the purchase and transfer of shares in domestic insurance companies.

The Draft Measures only apply to domestic insurances companies with less than 25 per cent foreign investment. Under the Draft Measures, insurance companies with more than 25 per cent foreign investment are considered “foreign insurance companies” and are subject to a different regime.

The Draft Measures increase from 5 to 20 per cent the maximum shareholding percentage a single foreign investor can hold in a domestic insurer. Under the Measures, the maximum shareholding by a single foreign or domestic investor (and its affiliates) is capped at 20 per cent of the domestic insurance company’s total shares, unless approved otherwise by the CIRC. Under the current regime, a single foreign investor cannot hold more than 5 per cent of domestic insurance company’s total shares.

The Draft Measures clarify the qualification requirements applying to foreign investors seeking to acquire a stake in PRC domestic insurers. In principle, only foreign financial institutions are eligible, and the Draft Measures require such institutions to have total assets of no less than USD2 billion at the end of the preceding year and an excellent credit rating in the preceding three years.

It is expected that the Draft Measures when issued will repeal the current restriction preventing foreign insurance companies that have established greenfield insurance business operation in China from acquiring a stake in domestic insurers.

Under the Measures, the acquisition price must be paid in cash. The Measures subject foreign investors acquiring shares in a domestic insurer to a three-year lockup period.

The Draft Measures are expected to be issued by the end of 2007.