The China Insurance Regulatory Commission (CIRC) yesterday published a draft of its new version of insurance company administrative rules, which significantly lowered the capital requirements for insurers and their branches.

A CIRC official stressed the commission was only seeking public comment on the revised version and the draft is still up to further revisions.

The discussion period ends on September 15.

The outgoing version came into effect on March 1, 2002, which stipulates that national insurance companies must have a minimum of 500 million yuan (US$60 million) in registered capital, while regional ones must have 200 million yuan (US$24 million).

They must add another 50 million yuan (US$6 million) of capital for every additional provincial-level branch until the total reaches 1.5 billion yuan (US$180 million) for national firms and 500 million yuan for regional players.

In the new version, the minimum registered capital requirement is unified at 200 million yuan (US$24 million). The additional requirement for branches is also 200 million yuan until the total capital hit 500 million yuan.

Tuo Guozhu, a professor at the Beijing-based Capital University of Economics and Business, said the relaxation in capital requirements would assist the development of Chinese insurance firms and was a right decision considering the rapid growth of foreign insurers in the local market.

"Now it's loosened further. You don't want to tie your own hands so tightly," Tuo said.

Prior to the promulgation of the old rules, Chinese insurance companies could add one new branch only when their premiums grew - by 100 million yuan (US$12 million) for national firms and 50 million yuan (US$6 million) for regional players.

In an attempt to grow their market shares quickly, some insurers took to irrational competitive measures and operational risks mounted. The introduction of the 2000 rules greatly boosted their branching efforts, with major insurers expanding their networks rapidly in the past three years.

"Capital is not a problem," Tuo said. "The rapid growth of life insurance premiums (in recent years) was a result (of the branching requirement change)."

The draft allows insurance companies to set up asset management firms to manage their indemnity funds, which some analysts say would pave the way for the long-awaited loosening of allowing insurance firms to trade stocks directly.

The CIRC official dismissed the speculation, insisting such asset management firms are subject to the same investment scope for insurance companies themselves.

Chinese insurance firms can only invest in bank deposits, bonds and securities funds, but are barred from trading stocks directly. The narrow scope is hampering their profitability and payment ability in the event of a claims peak.

(China Daily August 19, 2003)