What Are Insurance Mergers and Acquisitions?

On March 21, 2014, the China Insurance Regulatory Commission issued the "Regulations on the Administration of the Acquisition and Merger of Insurance Companies" with Bao Jian Fa [2014] No. 26. The "Measures" are divided into General Provisions, Acquisitions, Mergers, Supervision and Management, and Article 5 of Chapter 35, which will be implemented as of June 1, 2014.

Measures for the Administration of the Acquisition and Merger of Insurance Companies

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On March 21, 2014, the China Insurance Regulatory Commission issued the "Regulations on the Administration of the Acquisition and Merger of Insurance Companies" with Bao Jian Fa [2014] No. 26. The "Measures" are divided into General Provisions, Acquisitions, Mergers, Supervision and Management, and Article 5 of Chapter 35, which will be implemented as of June 1, 2014.

Chinese name

Measures for the Administration of the Acquisition and Merger of Insurance Companies

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Bao Jian Fa [2014] No. 26

Issue time

March 21, 2014

Issuing authority

China Insurance Regulatory Commission

Category

Normative documents

Implementation time

June 1, 2014

Function

Protecting the Rights of Insurance Consumers

On March 21, 2014, the China Insurance Regulatory Commission issued the "Measures for the Administration of the Acquisition and Merger of Insurance Companies" (hereinafter referred to as the "Measures"), which came into effect on June 1, 2014. This is another important measure for the CIRC to implement the spirit of the Third Plenary Session of the 18th CPC Central Committee and give full play to the decisive role of the market mechanism in the allocation of insurance resources. It also marks that the work of improving the insurance market entry and exit mechanism has achieved initial results. According to the actual situation of China's insurance industry mergers and acquisitions in recent years, the "Measures" adhere to the principle of marketization and rule of law in accordance with the general idea of "first to promote and second to regulate". Under the basic premise, the focus is on promoting the structural optimization and competitiveness of the insurance industry, while enriching the toolbox for risk management of insurance institutions.

The "Measures" follow the overall requirements of deepening reforms and promoting innovation, and have formulated necessary and feasible promotion policies for insurance company mergers and acquisitions to further encourage various types of high-quality capital at home and abroad, especially private capital, to invest in the insurance industry. The first is to moderately relax the source of funds, allowing investors to adopt financing methods such as mergers and acquisitions loans, with a maximum size of 50% of the total currency consideration; the second is to moderately relax the qualifications of shareholders, stipulating that investors may not apply the three-year investment period requirements for insurance companies; It is no longer a ban on interbank acquisitions and allows the acquirer to control two insurance companies operating similar businesses after the completion of the acquisition.

The Measures fully respect commercial voluntariness and guide market self-discipline, while formulating appropriate regulatory measures. The first is to strengthen the disclosure obligations of the parties to the merger and acquisition of insurance companies, and to play the independent role of professional intermediary service agencies; the second is to set the acquisition transition period and the equity lock-up period to ensure the continued and stable operation of the acquired insurance company; the third is to address false statements Violations such as equity holdings, etc., provide for necessary disciplinary mechanisms.

Notice of the China Insurance Regulatory Commission on Printing and Distributing the "Administrative Measures for the Acquisition and Merger of Insurance Companies" ^[1]

Full text of the management measures for the acquisition and merger of insurance companies ^[1]

The main purpose of the management measures for the acquisition and merger of insurance companies

Merger and reorganization is an effective measure for enterprises to strengthen resource integration and achieve rapid development. It is also an important way to adjust and optimize industrial structure and improve development quality and efficiency. Recently, the State Council issued a special opinion, clarifying the main objectives, basic principles and specific measures to further optimize the market environment for mergers and acquisitions of enterprises. In recent years, with the acceleration of China's insurance industry opening up to domestic and foreign capital, the number of insurance companies has continued to increase, and management and management have begun to diverge. The acquisitions and mergers of insurance companies with different motivations, forms, and scales have become increasingly active. The "Measures" follow the general idea of "first to promote and second to regulate", adhere to the principles of marketization and rule of law, and focus on promoting the structure of the insurance industry under the basic premise of focusing on protecting the rights and interests of insurance consumers and maintaining fair order in the insurance market Optimization and competitiveness enhancement, while enriching the toolbox for risk management of insurance institutions. ^[2]

Applicable objects of the insurance company's acquisition and merger management measures

From the perspective of participating entities, insurance industry mergers and acquisitions include insurance companies as the target company mergers and acquisitions and insurance companies as the leading company mergers and acquisitions. Based on the actual situation of China's insurance industry mergers and acquisitions and domestic and foreign regulatory practices, the Measures mainly regulate the merger and acquisition of target companies by domestic insurance companies, excluding the equity investment of insurance companies in non-insurance companies, and the equity of insurance companies in overseas insurance institutions. investment. In order to promote the uniform opening of the insurance market, the Measures are applicable to both Chinese insurance companies and foreign insurance companies. ^[2]

Measures for the management of the acquisition and merger of insurance companies

Consumers are the foundation for the survival and development of the insurance industry. The Measures reflect the policy guidance of the CIRC to continuously strengthen the protection of consumer rights and interests in many ways. First, it covers all types of insurance consumers who enjoy insurance consumption and services through the conclusion of insurance contracts, including policyholders, insureds, and beneficiaries; second, it stipulates the entire process of information disclosure obligations of insurance companies so that insurance consumers can understand Mergers and acquisitions, and reasonable consumption choices; Third, the protection of insurance consumer rights is listed as the focus of the review of insurance company acquisitions, and the insurance company's continuous reporting obligations within a certain period of time after the completion of the merger and acquisition are stipulated. ^[2]

Management Measures for the Acquisition and Merger of Insurance Companies

With reference to relevant domestic and foreign legislation, considering the relatively balanced equity structure of most insurance companies in China and the fact that a single shareholder generally holds no more than 20% of shares, the Measures define acquisitions as "the acquirer obtains three points of insurance companies once or cumulatively" More than one (excluding one-third) equity, and become the largest shareholder of the insurance company; or the acquirer has acquired the equity of the insurance company for less than one-third, but it has become the largest shareholder of the insurance company Shareholders, and control of insurance companies. " In accordance with the principle of tracing the final source of capital and conducting an overall review of the acquisition, the Measures determine the scope of the acquirer as "investors and their affiliates, persons acting in concert". At the same time, the "Measures" insist on the true and public identification of shareholders and the independent exercise of shareholders' rights, and do not allow acquisition of insurance companies through indirect control methods such as equity holdings and voting rights transfer. ^[2]

Measures for the management of mergers and acquisitions of insurance companies

Article 5 of the "Administrative Measures for the Equity of Insurance Companies" stipulates that "if two or more insurance companies are controlled by the same institution or have a controlling relationship, they shall not operate similar insurance businesses with conflicts of interest or competitive relationships." The main purpose is to prevent insurance companies Risk transfers and unfair competition take place. Considering that China s anti-unfair competition laws and regulations have been gradually improved, it is also more efficient for insurance companies to make acquisitions with insurance companies that have significant risks. According to the Measures, with the approval of the CIRC, the acquirer can control Two insurance companies operating similar businesses. ^[2]

Financing methods for insurance companies' merger and acquisition management measures

Article 7 of the "Administrative Measures on the Equity of Insurance Companies" stipulates that "Shareholders must not use bank loans and other forms of non-owned funds to invest in insurance companies." The main purpose is to ensure that shareholders have a good financial position and can perform continuous investment in insurance companies. ability. Considering that the scale of funds involved in insurance company mergers and acquisitions is often large, some investors with good financial conditions, especially private capital, are difficult to raise their own funds in a short period of time. The relevant regulatory authorities' risk assessment and risk management of mergers and acquisitions loans It has also clearly stipulated that the Measures are aimed at encouraging and promoting mergers and acquisitions by insurance companies, and stipulating that investors can adopt financing methods such as mergers and acquisitions, but the scale cannot exceed 50% of the total currency consideration. ^[2]

Management Measures for the Acquisition and Merger of Insurance Companies

The "Measures" strictly implement the concept of simplification of administration and the convenience of the people. The review of mergers and acquisitions by insurance companies is mainly based on the three approval items of "transfer of insurance company equity", "change of registered capital of insurance company", and "merger of insurance company". Without additional separate approvals for mergers and acquisitions. The Measures' review of mergers and acquisitions of insurance companies includes three aspects: First, the impact on the sustainability of the operation of the surviving insurance company or the newly established insurance company, including solvency status, financial status, management capabilities, etc .; The impact includes fair competition in the insurance market, the competitiveness of the insurance industry, and the risk disposal of insurance companies. The third is the impact on the legitimate rights and interests of insurance consumers, national financial security, and public interest. ^[2]

Management Measures for the Acquisition and Merger of Insurance Companies

The Measures fully respect commercial voluntariness and guide market self-discipline. At the same time, it takes the basic process of insurance company mergers and acquisitions as the main line, and stipulates necessary and appropriate regulatory measures. The first is to strengthen the information disclosure obligations of all parties in the merger and acquisition of insurance companies, and to give play to the independent role of accounting firms, professional evaluation agencies, and law firms; the second is to set the transition period for the acquisition of insurance companies, the re-election of the board of directors, and related transactions. The necessary restrictions have been made; the third is that the acquirer should make a written commitment not to transfer the relevant equity or shares within three years to ensure the continued and stable operation of the acquired insurance company; the fourth is to ensure the communication and coordination mechanism between the Supervisory Committee and relevant departments, and to complete the declaration information. Verification of authenticity, authenticity and accuracy; Fifth, punishment mechanisms such as order corrections and industry bans are provided for violations such as false statements and equity holdings. ^[2]