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China's insurance companies are being encouraged to expand overseas with a new regulation from the industry regulator on the establishment of overseas institutions.

The regulation, which will come into effect from September 1, is the fulfilment of a cabinet guideline encouraging qualified domestic insurers to set up overseas subsidiaries, a move aimed at enhancing the competitiveness of insurers.

To set up an overseas insurance institution, an insurance company must be in operation for at least two years with a minimum of 5 billion yuan (US$625 million) in total assets by the end of last year, according to the China Insurance Regulatory Commission (CIRC) regulation.

The insurer's foreign exchange reserve should be no less than US$15 million or other exchangeable foreign currencies of equivalent value by the end of last year.

Furthermore, the insurance company must meet regulatory requirements in terms of solvency capability, corporate governance and risk management. It should have no record of blunders within two years.

Under the regulation, insurers' overseas activities include setting up overseas insurance subsidiaries, companies and intermediary agencies or acquiring overseas insurance companies and intermediary agencies.

"Although the regulation is to do with overseas investment, the focus is still on business expansion rather than on the overseas investment of insurance capital," an insurance professor with Beijing's University of International Business and Economics told China Daily.

The CIRC has released two drafts in the past two years on investing in overseas insurance institutions.

The new regulation raises the previous threshold set in 2004 by adding the total assets and foreign reserve requirements; and in contrast to the 2005 regulation, it is not mandatory for insurers to hold a licence to run a foreign exchange business.

"Given the current strengths of domestic insurers, the entry threshold is not high," said an insider who declined to be named.

The country's leading insurance companies including China Life Insurance Co, Ping An Insurance Group and PICC Property and Casualty Insurance Co, have set up overseas subsidiaries in Europe, the United States and Southeast Asia.

Ping An, the country's second-largest life insurer, set up a wholly owned life insurance company in Viet Nam in February.

By the end of last year, China's insurance companies had set up 50 overseas subsidiaries, according to CIRC statistics.

(China Daily August 9, 2006)