CHINA Law and Practice Contributed by: Elsie Shi, George Yu, Eleanor Gu and Zach Xu, Jincheng Tongda & Neal Law Firm
4. Transaction Activity 4.1 M&A Activities Relating to Insurance Companies M&A activities involving insurance companies in China mainly take the form of: • acquiring existing shares from other shareholders; or • subscribing for newly issued shares through capital increase. In practice, both routes are often combined to address capital needs and adjust control. Under the Measures for the Administration of Share- holding in Insurance Companies, shareholders of insurance companies are classified into four catego- ries: • Financial Class I shareholders – holding less than 5%; • Financial Class II shareholders – holding 5% or more but less than 15%; • strategic shareholders – holding 15% or more but less than one third; and • controlling shareholders – holding one third or more, or whose voting rights are sufficient to exer- cise control over shareholder resolutions. Insurance M&A transactions are subject to NFRA supervision: • acquiring 5% or more of an insurer triggers NFRA approval, while Financial Class I shareholders (holding less than 5%) do not require prior approval but must complete a regulatory filing (filing is not required for shareholders of listed insurers); • natural persons may only become Financial Class I shareholders by purchasing shares of listed insur- ers; • domestic enterprises, partnerships, public institu- tions and social organisations may invest (public institutions and social organisations may only act as Financial Class I shareholders); • foreign shareholders must be financial institutions, assessed in accordance with the foreign-invested insurance company rules; and
• investors are also subject to lock-up requirements that vary by shareholder category, except where transfers occur as part of regulatory risk resolution, by regulatory order, or between entities under the same controller. In addition to NFRA supervision, acquisitions of insurance companies may also fall within the merger control regime. Transactions that meet the statutory thresholds must be notified to the Administration for Market Regulation for review. 5. Distribution 5.1 Distribution of Insurance and Reinsurance Products Insurance products are distributed through institution- al channels and insurance salespersons with certain licences or qualifications required by the NFRA. The distribution channels include direct sales by insurers and indirect sales by insurance intermediaries. Insurance sales intermediaries are categorised as insurance agents and insurance brokers. Insurance agents act on behalf of the insurers within the scope authorised by the insurers, including full-time agen- cies, part-time agencies and individual insurance agents. The most prominent example of part-time agencies is the bank insurance model (BIM), or ban- cassurance, where banks sell insurance products through their branches. In contrast, insurance bro- kers act on behalf of the policyholders, providing risk assessment, negotiating terms and assisting with claims. All distribution activities are strictly regulated by the NFRA. Insurers must obtain the insurance business operation licence issued by the NFRA to conduct insurance business. Insurance agencies or brokers must obtain the insurance agency or broker licence, respectively, in order to distribute insurance products. Insurance salespersons refers to individuals who execute insurance sales, including individual practi- tioners and employed personnel of insurers, or insur- ance intermediaries who engage directly in insurance practice. Insurance salespersons must complete a
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