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By Hu Yuanyuan (China Daily)
Updated: 2007-08-10 09:03

A non-insurance company can invest no more than a 20 percent stake in insurers, says a draft rule by the China Insurance Regulatory Commission.

"Such stipulation can help to diversify the shareholders of insurance companies, paving the way for other institutions'entry into the emerging sector," said Zhu Junsheng, an insurance researcher with the Capital University of Economics and Business.

The 20 percent ceiling also helps to prevent possible manipulations by some shareholders, Zhu added.

An official with the regulator told China Daily that they would pay particular attention to the industry background of investors, trying to gauge their "real intentions" for entering the insurance sector.

Some investors, the official said, just want to use cash-rich insurance companies as their personal ATMs.

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The draft, named "Insurance Companies'Stake Management Rule", also set a 25 percent ceiling for foreign investment in domestic insurers. If foreign investors hold a stake of 25 percent or above, they will have to follow the rules on management of foreign insurance companies.

According to the draft, any "qualified" foreign and domestic enterprise can invest in insurance companies.

To be a qualified foreign investor, it will have to have sound finances and make profits for three accounting years in a row, says the draft. Long-term foreign investors are also welcome but they should not compete with domestic insurers.

"Such requirements show the regulator' prudent attitude toward foreign investors, especially on possible mergers and acquisitions of domestic ones," said Zhu.

Other major requirements for foreign investors include minimum total assets of $2 billion by the end of last year and a rating of A or above by international rating agencies in the past three years.

To prevent risks, the form of investment should be in currency rather than collaterals, intellectual property or land-use rights. Investment by bank loans is prohibited. Besides, the stake can't be transferred or exchanged within three years.

China' insurance market has seen double-digit growth in the past two decades. Insurance companies'assets totaled 1.97 trillion yuan last year, an increase of 28.9 percent year-on-year, said the annual report of China' insurance market in 2006.