Move aimed at increasing ownership transparency, resolving problems

China's insurance regulator on Wednesday significantly revamped the rules that regulate the shareholding of the country's insurers, aiming to increase their ownership transparency and resolve acute problems such as fake capital injection and illegal shareholding entrustment.

The regulator expanded the number of provisions of the regulation from 37 to 94 and laid out detailed rules to strengthen regulations on issues including the qualification for insurers' shareholders, ownership structure and fund authenticity.

The move by the insurance regulator signified China's intensified effort to contain risks and to eradicate chaos in the financial industry.

The new regulation, which will be effective on April 10, reduced the maximum stake a single shareholder can own in an insurer to one third of the insurer's registered capital from 51 percent. The rules also stipulate that a single asset management plan or a trust product cannot hold more than a 5 percent stake of an insurer.

The regulator also required that investors must use their own, legally obtained capital to acquire a stake in an insurer and investors are banned from using a holding company or transferring expected investment returns to evade the rules.

"Many irregularities in the insurance industry have to do with shareholding problems," said He Xiaofeng, director of the development and reform department at the China Insurance Regulatory Commission.

He said the regulator faces immense challenges when it comes to regulatory penetration of the complicated shareholding structures of insurers and verifying the authenticity of their fund sources.

The insurance regulator is cooperating with the Ministry of Public Security to ensure that law and regulation violators in the industry are held accountable, according to He.

The new shareholding regulation of the country's insurers was seen as a critical document to eradicate acute risks associated with the opaque and complicated ownership structure of insurers and their illegal fund management, analysts said.

"It is a key effort of the government to address the regulatory shortcomings by further clarifying and improving the regulation," said Zhu Junsheng, an insurance researcher at the Development Research Center of the State Council.

Speculative investors will be discouraged from obtaining insurance licenses and using insurance companies as financing platforms for certain interest groups, Zhu said. He added that the regulation will help sharpen the focus of the industry on the insurance business and value creation for insurance customers.