Global Corporate Insurance And Regulatory Bulletin - First Quarter 2014

Keywords: insurance, reinsurance,

Global

RESPONSES TO IAIS CONSULTATION ON BASIC CAPITAL REQUIREMENTS FOR GLOBAL SYSTEMICALLY IMPORTANT INSURERS

As reported in our prior bulletins, on 18 July 2013 the International Association of Insurance Supervisors ("IAIS") published a methodology for identifying global systemically important insurers ("GSIIs") together with a set of policy measures that will apply to such insurers. In December 2013 the IAIS launched a consultation on basic capital requirements ("BCR") for GSIIs.

On 6 February 2014, the IAIS published a compilation of responses, dated 5 February 2014, received in respect of its consultation. Among the key issues that commentators addressed were: (1) the extent to which insurers will have to publicly disclose their BCR; (2) potential conflicts between BCR and Solvency II; (3) the legitimacy of a market-consistent approach to asset valuation; and (4) the capital classifications that will satisfy BCR requirements. The feedback will be used as a basis to inform the upcoming field testing phase and further support the design and development of BCR. The IAIS expects to approve the final BCR proposal in September 2014, to secure approval for the BCR from the Financial Stability Board ("FSB") in October-November 2014, and from the G20 in November 2014.

A link to the full compilation of responses can be found here.

Asia

CHINA - NEW MEASURES ON ADMINISTRATION OF ACQUISITIONS AND MERGERS OF INSURANCE COMPANIES

Under new rules issued by the China Insurance Regulatory Commission ("CIRC"), insurance companies in China, both domestic and foreign, will be allowed to acquire and merge with each other for the first time, and acquirers will be able to control two insurance companies that are in the same business. The Measures on Administration of Acquisitions and Mergers of Insurance Companies ("Measures"), effective from 1 June 2014, apply to any acquisition as a result of which the acquirer obtains more than a one-third equity interest in and becomes the largest shareholder of an insurance company target, or as a result of which the acquirer becomes the largest shareholder and controls the insurance company target even if the acquirer holds less than a one-third equity interest in that target insurance company.

An "acquirer" under the Measures includes certain affiliates of the acquirer and persons acting in concert with the acquirer. A person which was affiliated with the acquirer within a period of 12 months prior to the execution of the acquisition agreement will be deemed to be an affiliate. Two or more investors who have invested in the same insurance company within a three-month period will be deemed to be persons acting in concert.

The Measures amount to a relaxation of the current regime in the following respects:

Under the current regime, two or more insurance companies that are under common control or have a controlling relationship with each other are not permitted to carry on insurance businesses of the same category which can result in conflict of interests or competition between/among each other. In view of the developing maturity of China's anti-monopoly law and the efficiency that could be achieved by the acquisition of distressed insurance companies by other insurance companies operating in the same category of insurance business, the Measures will allow insurance companies to acquire and merge with each other and carry on insurance businesses of the same category. Under the current regime, an investor in an insurance company must make capital contributions in cash with its own funds - it may not fund its investment through debt financing. In view of the large-scale capital involved in acquisitions and mergers of insurance companies and the difficulty in raising equity capital within a short period of time even for acquirers in sound financial position, the Measures will allow acquisition or merger transactions to be funded partly through debt financing, provided that the debt portion does not exceed 50% of the total cash consideration involved in the transaction. The current regime requires a shareholder to have been invested in the insurance company for a period of more than three years before holding or acquiring more than 20% of the registered capital of an insurance company. The Measures will no longer require compliance with this qualification requirement. Notwithstanding the above, acquisitions and mergers of insurance companies remain subject to CIRC's approval and a three-year lock-up period during which the acquirer undertakes not to transfer the equity or shares it holds in the insurance company. There continues to be a restriction on owning both a life and property business unless, otherwise...