China Banking and Insurance Regulatory Commission: Insurance institutions should prudently carry out major equity investments, strengthen overall management of equity investments, and prevent uncontrolled expansion.

On April 3, the China Banking and Insurance Regulatory Commission issued a notice regarding major equity investments by insurance funds in unlisted companies. The notice mentioned that insurance institutions should clarify their development strategies and market positioning, enhance investment management capabilities, prudently carry out major equity investments in accordance with national policies and regulatory requirements, strengthen overall management of equity investments, and prevent disorderly expansion. The notice stated that insurance groups (holding) companies and insurance companies can invest in insurance-related enterprises, non-insurance financial enterprises, enterprises related to insurance businesses such as pensions, healthcare, automotive services, technology, big data industries, modern agriculture, as well as shared service enterprises that comply with regulatory provisions and other enterprises recognized by the China Banking and Insurance Regulatory Commission. The original text is as follows: Notice from the China Banking and Insurance Regulatory Commission on Matters related to Major Equity Investments by Insurance Funds in Unlisted Companies All financial regulatory authorities, insurance groups (holding) companies, insurance companies, insurance asset management companies: To regulate major equity investment activities of insurance funds in unlisted companies, promote the service of insurance funds to social livelihood, the real economy, and national strategies, and focus on doing the "Big Five" in finance, prevent the risks of fund utilization, according to the "Insurance Law of the People's Republic of China" and relevant regulations such as "Measures for the Administration of the Utilization of Insurance Funds" and "Interim Measures for the Investment of Insurance Funds in Equity," the relevant matters are notified as follows: 1. Major equity investment as referred to in this notice means that insurance groups (holding) companies, insurance companies, and insurance asset management companies (referred to as insurance institutions collectively) invest in and hold equity in unlisted companies in the name of investors, and according to the relevant provisions of Enterprise Accounting Standards, insurance institutions and their related parties engage in direct equity investment activities in companies where they control or jointly control the enterprise according to the enterprise accounting standards. 2. Insurance institutions should clarify their development strategies and market positioning, enhance investment management capabilities, prudently carry out major equity investments according to national policies and regulatory requirements, strengthen overall management of equity investments, and prevent disorderly expansion. 3. Insurance institutions engaging in major equity investments should meet the qualifications specified in the "Interim Measures for the Investment of Insurance Funds in Equity" and the "Notice on Issues related to the Investment of Insurance Funds in Equity and Real Estate," among others. Insurance institutions should use their own funds for all major equity investments. 4. Insurance groups (holding) companies and insurance companies can invest in insurance-related enterprises, non-insurance financial enterprises, enterprises related to insurance businesses such as pensions, healthcare, automotive services, technology, big data industries, modern agriculture, shared service enterprises that comply with regulatory provisions, as well as other enterprises recognized by the China Banking and Insurance Regulatory Commission. The scope of industries that insurance asset management companies can invest in for major equity investments is governed by the regulations of the "Regulations on the Administration of Insurance Asset Management Companies," Article 22. 5. Companies that insurance institutions invest in for major equity investments should have a simple equity structure, prominent core businesses, and should not be in situations as specified in Article 4 of the "Notice on Matters related to Financial Equity Investments by Insurance Funds." 6. Insurance institutions engaging in major equity investments should not engage in the following behaviors: - Conducting major equity investments not in line with company development strategies or being controlled by controlling shareholders - Using the invested enterprise as an investment holding platform in violation of rules that are unrelated to the core business of the enterprise - Substantially controlling or jointly controlling the invested enterprise but avoiding regulatory oversight through indirect investments, dispersed investments, etc. - Providing loans to the invested enterprise or guaranteeing financing for the enterprise, unless otherwise provided by the China Banking and Insurance Regulatory Commission - Providing financing through the invested enterprise to affiliates or designated parties, or engaging in benefit transfer - Engaging in reverse shareholdings with the invested enterprise, or having cross-shareholding arrangements between companies - Jointly conducting major equity investments with non-insurance institution investors through contracts, agreements, etc., or entrusting shareholder rights to investors other than insurance institutions - Other prohibited behaviors as stipulated by the China Banking and Insurance Regulatory Commission 7. Insurance institutions engaging in major equity investments should apply for approval to the China Banking and Insurance Regulatory Commission in accordance with regulatory requirements. The China Banking and Insurance Regulatory Commission will review major equity investment matters of insurance institutions in accordance with the law and make decisions on approval or disapproval. 8. Insurance institutions should establish sound equity investment decision-making procedures and authorization mechanisms, improve equity investment management systems, clarify responsibilities of personnel at all levels and relevant positions, standardize key business processes, and strengthen internal control management. 9. Insurance institutions should strengthen post-investment management, provide guidance and supervision on business planning, risk management, internal control compliance, and financial audits of the invested enterprises in accordance with laws and regulations, strictly manage the financing scale and leverage ratio of the invested enterprises, and monitor liquidity risks, legal compliance risks, and reputation risks regularly. 10. Insurance institutions should strengthen related party transaction management, control the number and scale of related transactions between the invested enterprises, establish risk isolation and firewall mechanisms in fund management, business operations, information management, and personnel management to prevent related risks from transferring to insurance institutions. 11. Insurance institutions should establish a system for accountability in major equity investments, and senior management and key business personnel who violate relevant regulations and fail to fulfill their duties leading to losses should be held accountable in accordance with the law and regulations. 12. The hierarchical control of equity between insurance institutions and their financial subsidiary companies should generally not exceed three levels, while the hierarchical control between insurance institutions and their non-financial subsidiary companies should generally not exceed four levels, unless otherwise specified by the China Banking and Insurance Regulatory Commission. The calculation of the equity control hierarchy is based on the level of the insurance institution as the first level. 13. If an insurance institution, through a non-operating special purpose entity, invests in a platform company established according to regulations, as well as through private equity investment funds, trust plans, etc., in enterprise equities, and the underlying invested enterprises constitute major equity investments based on the principle of looking through or when combined with direct equity investments, they should comply with the relevant provisions of this notice. Operational entities controlled or jointly controlled by insurance institutions that need to invest in subsidiaries or joint ventures should not exceed three levels between the insurance institution and the subsidiary, and generally not exceed four levels between the insurance institution and non-operating subsidiaries, unless otherwise specified by the China Banking and Insurance Regulatory Commission. The calculation of the equity control hierarchy is based on the level of the insurance institution as the first level.Insurance institutions should strengthen overall management, supervise the operating entities to carry out investments around their main business, regulate equity control levels according to regulatory requirements, prevent operating entities from expanding disorderly, and insurance institutions should not evade regulation through indirect investments by operating entities.Fourteen, insurance institutions shall, in accordance with the regulatory provisions such as the "Interim Measures for the Investment of Insurance Funds in Equity," include the details of major equity investments in their quarterly and annual fund utilization reports, and regularly submit relevant information to the information registration platform designated by the financial regulatory authority, including information on directly or indirectly controlled subsidiary companies at all levels and joint ventures. Fifteen, if insurance institutions violate the provisions of this notice by engaging in major equity investments, the financial regulatory authority or its delegated agencies shall order them to make corrections within a specified period of time and take regulatory measures or impose administrative penalties in accordance with the law. Sixteen, as of the date of issuance of this notice, where the previous regulations regarding insurance institutions' equity investments and the establishment of non-insurance subsidiaries are inconsistent with this notice, this notice shall prevail. For existing businesses that do not meet the requirements of the fourth, fifth, sixth, twelfth, and thirteenth articles of this notice, a five-year transitional period shall be set in principle. Insurance institutions shall formulate business rectification plans, clarify the time schedule, submit them to the financial regulatory authority or its delegated agencies for implementation, and complete the rectification work within the transitional period. China Banking and Insurance Regulatory Commission April 2, 2025 This article is selected from the China Banking and Insurance Regulatory Commission, edited by GMTEight: Chen Wenfang.