CHINA Law and Practice Contributed by: Elsie Shi, George Yu, Eleanor Gu and Zach Xu, Jincheng Tongda & Neal Law Firm
3. Overseas Firms Doing Business in the Jurisdiction 3.1 Overseas-Based Insurers or Reinsurers Unlicensed foreign insurers are not permitted to con- duct insurance business in China. Foreign reinsurers may accept cessions from Chinese cedents, provided that they meet specified financial strength and credit- rating requirements and complete registration under the China Reinsurance Registration System. Transac- tions with licensed Chinese counterparties (including related-party transactions) are not prohibited, but Chi- nese entities must comply with the applicable disclo- sure and reporting obligations. Since 2021, China has removed equity-ownership caps for foreign investment in the insurance sector. Foreign investors may establish wholly foreign-owned insurers, joint-venture insurers or branches in China. Where the largest (or sole) foreign shareholder is an insurance company, it must satisfy the requirements under the Regulations on the Administration of For- eign-Funded Insurance Companies, including total assets of at least USD5 billion. Other foreign financial institutions investing in insurers in China are generally subject to the shareholder-qual- ification standards applicable to domestic investors under the Measures for the Administration of Share- holding in Insurance Companies. To obtain an insurance licence, foreign investors must submit the application materials required under the Regulations on the Administration of Foreign-Funded Insurance Companies. The NFRA will decide whether to accept the application within six months of receiv- ing a complete set of documents. The applicant must complete the preparatory establishment within one year from receiving the preparatory approval (with a possible three-month extension) and thereafter submit the formal opening application. The NFRA will decide whether to approve the establishment within 60 days of receiving a complete formal application. Upon approval, the entity may obtain its business licence and commence operations. China does not maintain an EU-style passporting or mutual-recognition regime that would allow an over-
seas licence to be used to write business onshore. Onshore insurance activities must be conducted through locally licensed entities. The authors are not aware of any insurance-licensing changes introduced in China specifically in response to Brexit. 3.2 Fronting Reinsurance is permitted in China. Cedent retention is primarily governed by maximum retention caps. For property insurers, retained premiums for the cur- rent year may not exceed four times paid-in capital and surplus reserve, and liability per risk unit may not exceed 10% of paid-in capital plus surplus reserve, with any excess reinsured. Mergers of insurance com- panies are much less common in China. For credit insurance, total retained liability may not exceed ten times net assets; for financing-related credit insurance, the cap is four times net assets, or six times where at least 30% of the insured loans relate to inclusive finance for small and micro enterprises. At the regulatory level, concentration limits also restrict “full cession” in proportional reinsurance. Except for certain specialised lines (such as aerospace, nuclear, petroleum and credit), a direct insurer may not cede more than 80% of each property-risk unit to the same reinsurer. Insurers must also: • integrate reinsurance into their overall risk and capital management; • maintain a reinsurance strategy addressing reten- tion and cession; and • for overseas cessions, conduct ongoing monitoring and semi-annual assessments of related credit and liquidity risks.
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