New policy permits banks to be shareholders of insurance companies. Earlier this year, it became clearer that insurance companies may now invest in Chinese banks. In February, news from Chinese regulatory departments indicated banks would be allowed to invest in insurance companies. It was noted that this would be subject to regulations from the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC).
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The regulation allowing banks to invest in insurance companies was apparently submitted to the State Council by the CBRC in collaboration with the CIRC. As of 2006, during the course of the integration reform of financial services, insurance companies were permitted to initiate capital flow between banks and insurance companies. The Notification for Insurance Entity to Invest in the Equity Stake of the Bank was issued by the CIRC in September of 2006. It allows insurance companies to have an equity stake in non-listed banks, such as state-owned commercial banks, corporate commercial banks and municipal banks. In accordance with this change, China Life Insurance Company, the largest of all Chinese insurance companies, has made an investment into Guangdong Development Bank, while Ping An Insurance Company has merged with Shenzhen Commercial Bank.
This new development allowing investment in insurance companies by banks will deeply influence the insurance market and lead to a prominent role for banks in the future. It will also offer many challenges and opportunities for Chinese insurance lawyers as they seek to help their clients comply with this new regulation.
Separation of different types of entities in the Chinese financial market
Similar to insurance markets in other countries, the Chinese insurance market has experienced and is still experiencing the tumultuous transformation from an integrated system to a separated system and then back to the current integrated system. Before the 1990's, most Chinese financial entities had an integrated business structure in which subsidiaries were used to run other non-financial business operations. Some of these entities, for example, used this model to invest in the real estate and securities markets. Over investment eventually led to inflation and a bubble economy. As a result, Chinese financial regulatory departments put forth regulations separating financial and non-financial institutions.