2018 China Insurance Review Thomas P. Fitzgerald Chairman Winston & Strawn LLP 2018 was another exciting year in China’s insurance industry as the Chinese government announced and implemented a number of key reforms that reorient the industry towards sustainable growth and further open it up for foreign investment. These developments mean more opportunities for established and new insurance companies and insurance intermediaries looking to expand or create a foothold there. We are pleased to present the following report as an overview of the key legal developments which occurred during this time. I hope that you find this report useful. Please feel free to reach out to our China team should you have any questions or require any additional information. You will find their contact details at the end of this report. Winston & Strawn, a leading expert in cross-border M&A, contentious, and regulatory work, established offices in Hong Kong in 2008 and in Shanghai in 2009 in order to better serve our clients that operate in Asia. Our presence in Hong Kong and Mainland China has allowed us to broaden our services and extend the reach of our practices to include insurance expertise for the PRC. Attorney advertising materials – © 2019 Winston & Strawn LLP Table of Contents Introduction ............................................................................................................................................................................. 1 Developments ........................................................................................................................................................................ 1 Further Opening of the Market to Foreign Investment ............................................................................................2 HK-PRC Harmonization, Developments In Reinsurance and the Greater Bay Area Initiative .....................4 CIRC/CBIRC Industry Reforms ........................................................................................................................................5 Overhaul of Financial Regulatory Bodies ....................................................................................................................17 Looking Forward to 2019 ................................................................................................................................................. 19 Highlights of China’s Insurance Industry .....................................................................................................................21 Appendices 1-5 .................................................................................................................................................................. 23 Key Contacts........................................................................................................................................................................33 About Winston .................................................................................................................................................................... 35 2018 China Insurance Review Introduction China’s insurance industry has enjoyed robust growth announcements, but also began to follow through in in recent years. Total premium income, for example, many instances. Specifically, the Chinese government rose 27.5% in 2016 to reach RMB 3.1 trillion (USD 490 made a sustained and concerted effort to (i) modernize billion), the strongest growth the industry has enjoyed the insurance industry, (ii) address heightened pressure since 2008. As well, by the end of 2016, total insurance from the United States over trade and market access, industry assets stood at RMB 15.12 trillion (USD 2.39 and (iii) repair the damage caused by the deregulation trillion), a 22.3% increase from the start of the year. and malfeasance that occurred during Xiang Junbo’s five-and-a-half-year reign as Chairman of the CIRC. Premium growth slowed in 2017 and 2018, due in large part to China Insurance Regulatory Commission The main 2018 reforms include: (“CIRC”) and China Banking and Insurance Regulatory Commission (“CBIRC”) reforms aimed at universal life • a major liberalization of China’s rules governing foreign insurance. Nonetheless, the overall outlook for China investment into the insurance industry; is healthy and statistics for 2018 show that overall insurance premium income rose 3.92% from a year • the promulgation of requirements for collateral in earlier to RMB 3.8 trillion (USD 562.52 billion). Indeed, cross-border reinsurance transactions in the context of Swiss Re Group forecasts that premium income will post a framework agreement for China–Hong Kong mutual annual growth of over 10% in the coming two years. Total solvency recognition; insurance industry assets, as of the end of 2018, stood at RMB 18.33 trillion (USD 2.71 trillion), a 9.45% increase • the implementation of a wave of new regulations from the start of the year. meant to address excessive risk and to redirect the industry towards long-term sustainable growth. This report overviews the key developments in the PRC This effort mainly involved an attempt to put China’s insurance industry in 2018 that impact foreign investors insurers on a sounder risk-management and solvency and explains what these developments will mean in footing by implementing reforms designed to improve practice. It then forecasts regulatory trends in 2019 corporate governance, protect consumers, increase and beyond and concludes with a discussion of some product selection and otherwise modernize the statistical highlights and key growth drivers of China’s industry; and insurance industry. • a complete overhaul of China’s financial regulatory system, including the creation of a super regulator and Developments the merger of the CIRC with China’s banking regulator, to create the CBIRC as a single regulator for banks and 2018 was another watershed year for foreign insurers insurance companies. and intermediaries in China in that the Chinese government not only made a number of major reform 2018 was another watershed year for foreign insurers and intermediaries in China in that the Chinese government not only made a number of major reform announcements, but also began to follow through in many instances. 1 © 2019 Winston & Strawn LLP We discuss these developments and more in further detail below. The repeal of the RO Requirement, when 1 Further Opening of the Market to Foreign Investment implemented, will be 1.1 Insurance Companies a major reform that Foreign insurance companies and foreign investors in China’s insurance sector will benefit from two changes. will cut more than two and half years off the Increase and then Elimination of Foreign Ownership Cap in Life Insurance Companies: application process for In November 2017, in the wake of President Trump’s newly established foreign visit to the PRC, the Ministry of Finance announced that, among other things, China would allow qualified insurance companies. foreign investors to take majority stakes in joint venture life insurance companies by raising the foreign-ownership cap in such companies from 50% investors in China’s insurance industry—including the to 51% in three years and then removing all foreign repeal of the RO Requirement. On 30 May 2018, the ownership restrictions in five years. In April 2018, in CBIRC circulated for public comment the Recommended the context of mounting trade tensions, the People’s Draft of Decisions Relating to Amending Regulations Bank of China (“PBOC”) announced an accelerated Governing Foreign-invested Insurers in China. If timetable whereby China would allow 51% foreign implemented in its current draft form, the decisions ownership “as early as June 2018.” In June 2018, would repeal the RO Requirement. the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce published Impact on Intermediaries the new Negative List, which provides that 51% One question raised by the measures and ownership is now allowed and that the equity cap will recommended draft, however, is whether this change, be removed entirely by 2021, rather than by 2023, as if implemented, will also apply to foreign-invested originally announced. insurance intermediaries (i.e., brokers and agencies)— especially brokerages, which, unlike agencies, did a. Representative Office Requirement form a part of China’s WTO commitments in 2002. In 2018, the CBIRC began the process of repealing the requirement, set out in the Regulations Governing Foreign-invested insurance brokerages became Foreign-invested Insurers in China (the “Insurance subject to the RO Requirement by reference to Regulations”), that foreign insurance companies the Insurance Regulations. Specifically, the 2002 must have a representative office in China for two CIRC Notice Concerning China’s Accession to the consecutive years before they are allowed to apply to WTO not only authorized foreign investment into establish a foreign-invested insurance company (the insurance brokerages, but also made it clear that, as “RO Requirement”). This requirement has presented an a pre-condition, the investor would need to meet a additional barrier to entry into the insurance market in number of the same conditions applicable to foreign- China—which can already take years to complete.1 invested insurance companies found in the Insurance Regulations, including the RO Requirement. Thus, On 27 April, 2018, the CBIRC issued the Measures on foreign-invested insurance brokerages became Facilitating