ITEM 1. BUSINESS
Corporate History and Structure Overview
Our Company is a Delaware corporation organized
on June 4, 2010 and has been quoted on various tiers of the OTC Markets since August 2012. We provide our customers brokerage and
related services with respect to life insurance and property and casualty insurance products. We operate our Taiwan business primarily
through Law Insurance Broker Co., Ltd. (“Law Broker”) and our PRC business primarily through Law Anhou Insurance Agency
Co., Ltd. (“Anhou”).
Taiwan Segment- Law Broker and GHFL
The history of our Company dates back to
October 9, 1992, when Law Broker was established.
Law Enterprise Co., Ltd. (“Law Enterprise”), a company
limited by shares and incorporated under the laws of Taiwan, holds 100% interest in Law Broker, a company limited by shares and
incorporated under the laws of Taiwan on October 9, 1992. Law Enterprise used to operate two other subsidiaries during the past
three fiscal years, namely Law Risk Management & Consultant Co., Ltd. (“Law Management”), a company limited by
shares and incorporated under the laws of Taiwan on December 5, 1987, and Law Insurance Agent Co., Ltd., a company limited by shares
and incorporated under the laws of Taiwan on June 3, 2000 (“Law Agent”, collectively with “Law Enterprise”,
“Law Broker” and “Law Management”, the “Taiwan Subsidiaries”, each a “Taiwan Subsidiary”).
Law Management and Law Agent ceased operations, and they were dissolved on April 20, 2016 and April 12, 2016, respectively.
Action Holdings Financial Limited (“AHFL”)
was incorporated in the British Virgin Islands with limited liability on April 30, 2012. AHFL holds a 65.95% interest in Law Enterprise
and certain of our other subsidiaries as more fully described below.
On August 24, 2012, an acquisition
agreement (the “AHFL Acquisition Agreement”) was entered into by and among our Company and the selling
shareholders of AHFL named therein. Pursuant to the AHFL Acquisition Agreement, our Company acquired 100% interest in AHFL
and its subsidiaries in Taiwan and our Company agreed to pay NT$15.0 million ($500,815) on or prior to March 31, 2013 and
NT$7.5 million ($250,095) subsequent to March 31, 2013 in cash in two installments. In addition, our Company agreed to (i)
issue 8,000,000 shares of common stock of our Company to the shareholders of AHFL; (ii) issue 2,000,000 shares of common
stock of our Company to certain employees of Law Broker; and (iii) create an employee stock option pool, consisting of
available options, exercisable for up to 2,000,000 shares of common stock of our Company. Upon closing of the transaction, we
acquired 100% interest in AHFL and its subsidiaries in Taiwan.
On March 14, 2013, an Amendment to the
AHFL Acquisition Agreement (the “First Amendment to AHFL Acquisition Agreement”) was entered into by and among our
Company and the selling shareholders of AHFL named therein. Pursuant to the First Amendment to AHFL Acquisition Agreement, (i)
the deadline for cash payment under the AHFL Acquisition Agreement was extended to March 31, 2015; and (ii) in lieu of the 2,000,000
employee stock option pool, our Company agreed to create an employee stock pool consisting of up to 4,000,000 shares of the common
stock of our Company, among which 2,000,000 shares shall be solely granted to employees of Law Broker, and the remaining 2,000,000
shares shall be granted to employees of affiliated entities of our Company (including Law Broker employees).
On March 13, 2015, a second Amendment to
the AHFL Acquisition Agreement (the “Second Amendment to AHFL Acquisition Agreement”) was entered into by and among
our Company and the selling shareholders of AHFL named therein. Pursuant to the Second Amendment to AHFL Acquisition Agreement,
the deadline for cash payment under the AHFL Acquisition Agreement was further extended to March 31, 2016.
On February 17, 2016, a third Amendment
to the AHFL Acquisition Agreement (the “Third Amendment to AHFL Acquisition Agreement”) was entered into by and among
our Company and the selling shareholders of AHFL named therein. Pursuant to the Third Amendment to AHFL Acquisition Agreement,
on or prior to June 30, 2016, (i) our Company committed to complete a public offering in connection with the listing of our Company’s
shares on a national stock market, where the Company aimed to raise net proceeds through such public offering of at least $10.0
million; (ii) our Company committed to distribute a cash payment in the amount of NT$22.5 million, on a pro rata basis, to the
selling shareholders of AHFL and to issue 5,000,000 common shares to select employees of AHFL pursuant to its employee stock/option
plan, and (iii) failure to timely complete either of the above-mentioned criteria would be deemed a material breach by the Company
under Article 8 of the Acquisition Agreement, and the non-breaching parties would be entitled to terminate the Acquisition Agreement
and unwind the Acquisition of AHFL by us and restore the status quo of our Company and the selling shareholders of AHFL as if the
acquisition had never happened.
On August 8, 2016, a fourth Amendment
to the AHFL Acquisition Agreement (the “Fourth Amendment to AHFL Acquisition Agreement”) was entered into by and
among our Company and the selling shareholders of AHFL named therein. Pursuant to the Fourth Amendment to AHFL Acquisition
Agreement, (i) the Third Amendment to AHFL Acquisition Agreement was terminated with immediate effect on August 8, 2016, and
(ii) our Company agreed to pay to the selling shareholders of AHFL NT$15.0 million on or prior to March 31, 2017 and NT$4.8
million on July 21, 2016.
On March 12, 2017, a fifth Amendment to
the Acquisition Agreement (the “Fifth Amendment to AHFL Acquisition Agreement”) was entered into by and among our Company
and the selling shareholders of AHFL named therein. Pursuant to the Fifth Amendment to AHFL Acquisition Agreement, our Company
agreed to distribute the cash payment in the amount of NT$15 million to the selling shareholders of AHFL named therein on or prior
to March 31, 2019.
On March 27, 2019, a sixth Amendment to
the Acquisition Agreement (the “Sixth Amendment to AHFL Acquisition Agreement”) was entered into by and among our Company
and the selling shareholders of AHFL named therein. Pursuant to the Sixth Amendment to the AHFL Acquisition Agreement, our Company
agreed to distribute cash payment in the amount of NT$15 million to the selling shareholders of AHFL named therein on or prior
to March 31, 2021.
Genius Holdings Financial Limited (“GHFL”) is a
wholly owned subsidiary of AHFL. On February 13, 2015, our Company, AHFL and Mr. Chwan Hau Li, the then sole shareholder of GHFL,
entered into an acquisition agreement (the “GHFL Acquisition Agreement”). Pursuant to the GHFL Acquisition Agreement,
our Company issued Mr. Chwan Hau Li 352,166 fully paid and non-assessable shares of AHFL common stock (the “AHFL Shares”)
together with put options to sell 352,166 shares of common stock of our Company (the “Put Option”), in exchange for
704,333 shares of common stock of GHFL previously held by Mr. Chwan Hau Li, which constituted all of the then issued and outstanding
capital stock of GHFL. The Put Option was exercisable within six months of the closing date of the acquisition. The holder of the
Put Option would need to forfeit the AHFL Shares to exercise of the Put Option. Subsequent to the acquisition, GHFL became a wholly-owned
subsidiary of our Company. GHFL holds 100% issued and outstanding shares of Genius Investment Co., Ltd. (“GIC”), a
company limited by shares and incorporated under the laws of Taiwan, which in turn holds approximately 15.64% issued and outstanding
shares of Genius Insurance Broker Co., Ltd. (“Genius Broker”), a company limited by shares and incorporated under the
laws of Taiwan. Both GHFL and GIC have no substantive business operation other than the holding of shares of its subsidiary. Genius
Broker is primarily engaged in broker business across Taiwan. On March 31, 2015, Mr. Chwan Hau Li exercised the Put Option, pursuant
to which Mr. Chwan Hau Li transferred 352,166 shares of AHFL to our Company and received 352,166 shares of common stock of our
Company in exchange. After the exercise of the Put Option, the Company became the sole shareholder of GHFL and AHFL.
On February 17, 2016, our Company, AHFL
and Mr. Chwan Hau Li entered into an Amendment 2 to the GHFL Acquisition Agreement (the “Second Amendment to GHFL Acquisition
Agreement”), pursuant to which our Company agreed to complete a public offering with net proceeds of at least $10 million
and listing of our Company’s securities on a national stock market on or prior to February 28, 2016. However, as of the date
of this annual report, our Company’s securities had not been listed on a national stock exchange.
On August 8, 2016, our Company, AHFL and
Mr. Chwan Hau Li entered into an Amendment 3 to the GHFL Acquisition Agreement (the “Third Amendment to GHFL Acquisition
Agreement”), pursuant to which, the Second Amendment to GHFL Acquisition Agreement was terminated.
In July of 2018, the Company acquired Joint
Broker Co., Limited (“JIB”), a Taiwan Insurance brokerage company, previously known as Kao Te Insurance Broker (“KT
Broker”), through GIC. On July 1, 2018, GIC entered into an acquisition agreement (“KT Broker Acquisition Agreement”)
with the selling shareholder of KT Broker, Ms. Ma. Pursuant to the KT Broker Acquisition Agreement, GIC agreed to pay $29,545 (NT$
900,000) in exchange for the insurance brokerage licenses issued to KT Broker by the Taiwanese government, along with right to
the KT Broker’s company name and $13,131 (NT$ 400,000) of legal deposits, which were required by the Taiwanese insurance
regulations. The Company has no intention of operating the KT Broker existing brokerage business nor retaining any of its sales
personnel, therefore the Company recognized for accounting purposes only the acquisition of assets as part of this transaction.
The Taiwanese laws do not allow a legal entity to transfer its brokerage license. In order to obtain the desired licenses that
KT Broker had, we acquired KT Broker and renamed KT Broker as Joint Insurance Broker Co., Limited to serve as a holding entity
for the brokerage licenses. The change of control due to KT Broker Acquisition Agreement and name change did not affect the
effectiveness of the insurance brokerage license owned by JIB in Taiwan.
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Recent Development- Uniwill Insurance Broker Co., Ltd.
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On November 15, 2019, the Company, through
one of its subsidiaries, entered into a joint venture agreement (the “Joint Venture Agreement”) with Cyun-Jhan Enterprise
Co., Ltd. (“Cyun-Jhan”) and Jian-Zao International Industrial Co., Ltd. to contribute funds, human resources, and technology
into Uniwill Insurance Broker Co., Ltd. (“Uniwill”), a wholly owned subsidiary of the Company incorporated in Taiwan,
according to the Joint Venture Agreement. Under the terms of the Joint Venture Agreement, a total of $13.3 million (NTD 400 million)
will be injected to Uniwill if and when all of the conditions are met as set forth in the Joint Venture Agreement no later than
December 31, 2021. For more information, please see a current report on Form 8-K filed on November 21, 2019.
PRC Segment- Anhou
On July 12, 2010, ZLI Holdings Limited
(“CU Hong Kong”), a wholly owned subsidiary of our Company, was established under the laws of Hong Kong. On October
20, 2010, Zhengzhou Zhonglian Hengfu Consulting Co., Ltd., a wholly foreign owned enterprise (“CU WFOE”), a wholly
owned subsidiary of CU Hong Kong, was established in Henan province of the PRC. On January 16, 2011, our Company issued 20,000,000
shares of common stock to several non-U.S. persons for their investment of $300,000 in CU WFOE. The issuance was made pursuant
to an exemption from registration contained in Regulation S under the Securities Act of 1933, as amended.
Zhengzhou Anhou Insurance Agency Co., Ltd.,
the predecessor entity of Anhou, was founded in Henan province of the PRC on October 9, 2003. Due to PRC legal restrictions on
foreign ownership and investment in an insurance agency businesses in China, Able Capital Holding Co., Ltd., a company established
with limited liability in Hong Kong, delegated four PRC individuals, namely Yanyan Wang, Zhaohui Chen, Weizhe Hou and Yong Zhang,
to invest in Anhou on its behalf.
On September 26, 2013, Yanyan Wang,
Zhaohui Chen, Jing Yue, Weizhe Hou, Yong Zhang, Li Chen (“Anhou New Investors”) and Shuqin Zhu, Qun Wei, Qunlei
Fang and Yanxia Chen (“Anhou Original Shareholders”) increased the registered capital of Anhou to RMB50 million,
among which, (i) Yanyan Wang agreed to invest RMB10 million, accounting for 20% of registered capital in Anhou, (ii) Zhaohui
Chen agreed to invest RMB10 million, accounting for 20% of registered capital in Anhou, (iii) Jing Yue agreed to invest
RMB7.5 million, accounting for 15% of registered capital in Anhou, (iv) Weizhe Hou agreed to invest RMB5 million, accounting
for 10% of registered capital in Anhou, (v) Yong Zhang agreed to invest RMB4.5 million, accounting for 9% of registered
capital in Anhou, and (vi) Li Chen agreed to invest RMB3 million, accounting for 6% of registered capital in Anhou,
respectively.
The registered capital increase of Anhou
was in response to the promulgations of certain regulations by the China Insurance Regulatory Commission (“CIRC”).
On April 27, 2013, CIRC issued the Decision on Revising the Provisions of the Supervision and Administration of Specialized Insurance
Agencies (the “Decision on Revising the Agency Provisions”), pursuant to which, CIRC mandated any insurance agency
established subsequent to the Decision on Revising the Agency Provisions to meet a minimum registered capital requirement of RMB50
million. On May 16, 2013, CIRC issued Notice for Further Clarification on Related Issues of Access to Professional Insurance Intermediary
Market (the “2013 Notice”), pursuant to which, professional insurance agencies established prior to the issuance of
the Decision on Revising the Agency Provisions, with registered capital less than RMB50 million, can continue operation of their
existing business within the provinces where they have the registered office or branch office, but shall not set up any new branches
in any province where they do not have the registered office or any branch office. To better implement the expansion strategies
of our Company, Anhou increased its registered capital to RMB50 million to meet the requirement of CIRC so that it is able set
up new branches in any province beyond its current operations in the PRC.
On October 24, 2013, Anhou Original Shareholders
transferred their interests in Anhou to Changrong Hu, a PRC citizen (“Mr. Hu,” together with Anhou New Investors, “Anhou
Existing Shareholders”), for an aggregate consideration of RMB10 million. Mr. Hu is currently the legal representative, General
Manager and the sole director of Anhou.
On November 17, 2016, Li Chen transferred
his interests in Anhou to Chunyan Lu for an aggregate consideration of RMB3 million.
Sichuan Kangzhuang Insurance Agency Co.,
Ltd. (“Sichuan Kangzhuang”), a wholly owned subsidiary of Anhou, was established with limited liability on September
4, 2006 in Sichuan province of the PRC. On September 6, 2010, shareholders of Sichuan Kangzhuang transferred their interest in
Sichuan Kangzhuang to Anhou for an aggregate consideration of RMB532,622. For the purpose of procuring certain economic benefits
and enabling a centralized control over the business operations in Sichuan province, the Company commenced the dissolution process
of Sichuan Kangzhuang, a wholly owned subsidiary of Anhou and set up a branch office of Anhou in Sichuan province. Accordingly,
Sichuan Kangzhuang filed a dissolution application to the local Bureau of Administration and Commerce and made a public announcement
published in local newspaper in October 2017. As Sichuan Kangzhuang ceased operations, it was dissolved on October 8, 2018.
Jiangsu Law Insurance Brokers Co.,
Ltd. (“Jiangsu Law”), a wholly owned subsidiary of Anhou, was established with limited liability on September 19,
2005 in Jiangsu province of the PRC. Jiangsu Law is licensed to provide insurance brokerage services in Jiangsu Province. On
September 28, 2010, Anhou and the shareholders of Jiangsu Law entered into an equity transfer agreements. Pursuant to
Provisions on the Supervision and Administration of Insurance Brokerage Institution, effective on October 1, 2009, if an
insurance brokerage entity fails to bring its registered capital to no less than RMB10 million on or prior to October 1,
2012, the CIRC or its local agency, as applicable, may determine not to extend the insurance brokerage license. To meet such
minimum registered capital requirement, on February 11, 2011, Anhou invested RMB4.82 million in Jiangsu Law to increase the
registered capital to RMB10 million.
Our Consolidated Affiliated Entities
Due to PRC legal restrictions on foreign
ownership and investment in insurance agency and brokerage businesses in China, especially those on qualifications as well as capital
requirement of the investors, we operate our PRC business primarily through Anhou and Jiangsu Law (collectively, the “Consolidated
Affiliated Entities”, each a “Consolidated Affiliated Entity”). We do not directly hold equity interests in our
Consolidated Affiliated Entities. However, through the VIE Agreements (defined as below), we effectively control, and are able
to derive substantial economic benefits from, these Consolidated Affiliated Entities. On March 12, 2019, the Ministry of Commerce
of the People’s Republic of China (“MOFCOM”) passed the Foreign Investment Law, which replaced the three existing
laws over foreign investment. From January 1, 2020, foreign individuals, enterprises and other organizations that directly or indirectly
make investment activities in China are subject to the Foreign Investment Law. However, it remains unclear as to how these changes
will affect entities currently operating in China, particularly foreign controlled variable interest entities.
Our Consolidated Affiliated Entities in
China are variable interest entities through which all of our insurance services in China are operated. These VIE Agreements give
us effective control over our Consolidated Affiliated Entities in China and allow us to consolidate the financial results of our
Consolidated Affiliated Entities in our financial statements.
On January 17, 2011, CU WFOE, Anhou and
Anhou Original Shareholders entered into a series of agreements (the “Old VIE Agreements”) pursuant to which CU WFOE
exercises effective control over Anhou. As a result of the capital increase and the share transfer described above, on October
24, 2013, CU WFOE, Anhou and Anhou Existing Shareholders entered into a series of agreements (the “VIE Agreements”),
including Power of Attorneys, Exclusive Option Agreements, Share Pledge Agreements, in the same form as the previous Old VIE Agreements,
other than the change of shareholder names and their respective shareholdings. The Old VIE Agreements were terminated by and among
CU WFOE, Anhou and Anhou Original Shareholders on the same date, except that the Exclusive Business Cooperation Agreement executed
by and between CU WFOE and Anhou on January 17, 2011 remains in full effect. The VIE Agreements now in effect include:
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An exclusive Business Cooperation Agreement, pursuant to which CU WFOE is appointed as the exclusive services provider to Anhou of complete technical support, business support and related consulting services in exchange for 90% of the net profits of Anhou. The Exclusive Business Cooperation Agreement was effective on January 17, 2011 with a term of ten years subject to renewal at the discretion of CU WFOE. CU WFOE may terminate the agreement at any time with 30 days’ written notice but Anhou may only terminate the agreement if CU WFOE commits gross negligence or a fraudulent act against Anhou;
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a Power of Attorney, pursuant to which the shareholders of Anhou have vested their collective voting control in Anhou to CU WFOE;
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an Option Agreement, pursuant to which the shareholders of Anhou granted to CU WFOE the irrevocable right and option to acquire all of their equity interests in Anhou. The Option Agreement was effective on October 24, 2013 with a term of ten years subject to renewal at CU WFOE’s election; and
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a Share Pledge Agreement, pursuant to which the shareholders of Anhou have pledged all of their equity interests in Anhou to CU WFOE to guarantee Anhou’s performance of its obligations under the Exclusive Business Cooperation Agreement.
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Hong Kong Segment Reinsurance Brokerage-
PFAL
Prime Financial Asia Ltd. (“PFAL”)
is a re-insurance broker company incorporated in Hong Kong and is a majority-owned subsidiary of the Company due to the fact that
AHFL owns 51% of PFAL. On April 23, 2014, AHFL and Chun Kwok Wong (“Mr. Wong”) entered into a Capital Increase Agreement,
pursuant to which Mr. Wong increased PFAL’s registered capital from HK$500,000 to HK$1,470,000 and AHFL contributed HK$1,530,000
to PFAL’s registered capital. Upon the completion of capital increase on April 30, 2014, Mr. Wong and AHFL owned 49% and
51% of PFAL’s equity interest, respectively.
On August 7, 2015, Max Key Investment Ltd.
(“MKI”) was incorporated with limited liability in the British Virgin Islands. On August 15, 2015, Prime Management
Consulting (Nanjing) Co., Ltd. (“PTC Nanjing”) was incorporated with limited liability in Nanjing province of the PRC.
On September 3, 2015, Prime Asia Corporation Limited. (“PTC Taiwan”), a company limited by shares, was incorporated
in Taiwan. Each of MKI, PTC Nanjing and PTC Taiwan is a wholly owned subsidiary of PFAL.
Revenue Generation
As a holding company with no business other
than holding equity interest of our operating subsidiary, CU WFOE in China and the Taiwan Segment, we rely principally on dividends
to be paid by CU WFOE in China and the Taiwan Segment. CU WFOE, being the exclusive service provider to Anhou, relies on the service
fees to which it is entitled from Anhou. Pursuant to the Exclusive Cooperation Agreement (the “Cooperation Agreement”)
between CU WFOE and Anhou, CU WFOE has the right to collect 90% of the net profits of Anhou. Anhou has been paying service fees
according to the Cooperation Agreement, but has not paid any dividend to CU WFOE to date. As of December 31, 2019, Anhou was operating
at a profit, but since Anhou remains a growing company that requires financial resources to support further expansion, the decision
as to a dividend payment will be decided in the future depending on the financial circumstances, including maintaining prudent
cash reserves. Our capability to receive dividends from CU WFOE, convert them into USD and make the repatriation out of China is
subject to the applicable PRC restrictions on the payment of dividends by PRC companies, laws and regulations on foreign exchange
and restrictions on foreign investment.
For the year ended December 31, 2018, 85.82 %, 13.31% and 0.87%
of our revenues in our consolidated financial statements were derived from our Taiwan Segment, PRC Segment, and Hong Kong Segment,
respectively. For the year ended December 31, 2019, 91.14 %, 8.87% and 0.30% of our revenues in our consolidated financial statements
were derived from our Taiwan Segment, PRC Segment, and Hong Kong Segment, respectively. Revenues in our consolidated financial
statements are composed of commissions earned from insurance companies according to the terms of each insurance company service
agreement, as well as revenues earned in association with the Strategic Alliance Agreement with AIA International Limited Taiwan
Branch.
Reclassification of Shares
On January 28, 2011, our Company increased
the number of authorized shares from 30,000,000 shares of common stock to 100,000,000 shares of common stock and 10,000,000 shares
of preferred stock. On July 2, 2012, our board of directors and stockholders approved, in connection with a reclassification of
1,000,000 issued and outstanding shares of common stock (the “Reclassified Shares”), par value $0.00001 per share held
by Mr. Yi Hsiao Mao (“Mr. Mao”) into 1,000,000 shares of Series A Convertible Preferred Stock, par value $0.00001 per
share (the “Series A Preferred Stock”) on a share-for-share basis (the “Reclassification”), the issuance
of 1,000,000 shares of Series A Preferred Stock to Mr. Mao and cancellation of 1,000,000 common stock held and submitted by Mr.
Mao pursuant to the Reclassification. All of the 1,000,000 shares of Series A Preferred Stock are reclassified from the 1,000,000
common stock held by Mr. Mao and no additional consideration has been paid by Mr. Mao in connection with the Reclassification.
Each holder of common stock shall be entitled to one vote for each share of common stock held of record by such holder as of the
applicable record date on any matter that is submitted to a vote of the stockholders of our Company; while each holder of Series
A Preferred Stock shall be entitled to ten votes for each share of Series A Preferred Stock held of record by such holder as of
the applicable record date on any matter that is submitted to a vote of the stockholders of our Company.
2017 Long Term Incentive Plan
On May 12, 2017, the Company’s
2017 Long Term Incentive Plan (the “2017 Plan”) was approved by the shareholders at the 2017 Annual Meeting of
Stockholders of China United Insurance Service, Inc. Up to 10,000,000 shares of our Common Stock may be granted under the
2017 Plan (the “Share Pool”), provided that 2,000,000 shares of the Share Pool is reserved for issuance to
eligible participants providing services to AHFL and its subsidiaries. Eligibility to participate is open to officers,
directors and employees of, and other individuals (including sales agents who are exclusive agents of the Company or its
subsidiaries or derive more than 50% of their income from those entities) who provide bona fide services to or for, us or any
of our subsidiaries. Given that metrics for evaluating performance goals are rather complex and exhaustive, and that the
Company’s management and Board of Directors are still working to develop a series of reward policies that specify
various performance target levels and the size of the award or payout of performance shares with respect to each different
target level attained, no awards were granted under the 2017 Plan as of December 31, 2019.
The following flow chart illustrates our Company’s organizational
structure as of March 6, 2020:
Products and Services
The Taiwan and PRC Segments market and
sell to customers two broad categories of insurance products: life insurance products and property and casualty insurance products,
both focused on meeting the particular insurance needs of individuals. The insurance products that the Taiwan and PRC Segments
sell are underwritten by some of the leading insurance companies in Taiwan and China, respectively.
Through Anhou’s wholly-owned insurance
brokerage firm, Jiangsu Law, Anhou also closely interacts with insurance companies and actively locates and introduces the right
customers in Anhou’s database matching the insurance products offered by such insurance companies to them.
The Taiwan and PRC Segments are compensated
primarily by commissions and fees paid by insurance companies, typically based on a percentage of the premium paid by the insured
or a percentage of the amount recovered from insurance companies. Commission and fee rates generally depend on the type of insurance
products and the particular insurance company that issues the particular insurance products.
Life Insurance Products
The Taiwan Segment
The
life insurance products the Taiwan segment distributes can be broadly classified into the categories set forth below. Due to continuous
product innovation by insurance companies, some of the insurance products Taiwan segment distributes combine features of one or
more of the categories listed below. Total net revenues from life insurance products distributed by Taiwan segment in the fiscal
year of 2019 was approximately $81.54 million, accounted for approximately 93.96% of Taiwan segment’s total net revenues
and approximately 85.01% of our total net revenues for the fiscal year ended December 31, 2019, respectively.
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Individual Whole Life Insurance. The individual whole life insurance products the Taiwan segment distributes provide insurance for the insured person’s entire life in exchange for the periodic payment of fixed premiums over a pre-determined period, generally ranging from six to 20 years, or until the insured reaches a certain age. The face amount of the policy or, for some policies, the face amount plus accumulated interest is paid upon the death of the insured.
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Individual Term Life Insurance. The individual term life insurance products the Taiwan segment distributes provide insurance for the insured for a specified time period or until the attainment of a certain age, in return for the periodic payment of fixed premiums over a pre-determined period, generally ranging from six to 20 years. Term life insurance policies generally expire without value if the insured survives the coverage period.
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Individual Health Insurance. The individual health insurance products the Taiwan segment distributes pay the insured amount of reasonable hospitalization cost, or certain death benefit in case of the death of the insured, due to illness, accident or childbirth. Individual health insurance policies expire when the premium is not paid or a certain age is attained.
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Accidental Injury Insurance. The accidental injury insurance products the Taiwan segment distributes provide benefits when the insured is dead or disabled because of accidental injury, which is unforeseen by the injured or against his will.
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Investment-Oriented Insurance. The investment-oriented insurance products the Taiwan segment distributes are market linked insurance plans which also provide life coverage, combining advantages of investment and protection. The premium amount (after deduction of certain charges) is invested into different funds. The performance of the fund will depend on the market conditions. A growing upward trend in market will increase the fund value. Every investment-oriented insurance policy has market risk exposure depending on the fund invested and such investment risk is solely borne by the policyholder. Depending on the death benefit, investment-oriented insurance policies are categorized into two broad categories: (1) the death benefit is equal to the higher of insured amount or fund value; (2) the death benefit is equal to the insured amount plus fund value.
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Foreign Currency Insurance Commodities. The foreign currency insurance commodities the Taiwan segment distributes are life insurance policies in which policy benefits are paid in foreign currencies. The foreign currency policy provides insurance for the insured person’s life in exchange for the periodic payment of fixed premiums over a pre-determined period, generally ranging from six to 20 years, or until the insured reaches a certain age. The face amount of the policy or, for some policies, the face amount plus accumulated interest, is paid upon the death of the insured.
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Travel Accident Insurance. The travel accident insurance products the Taiwan segment distributes provide accident coverage for accidental death, bodily injury, and other travel injuries. The premium is based on the number of travel days and the insured amount.
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The
life insurance products the Taiwan segment distributed in the year ending December 31, 2019 were primarily underwritten by, in
alphabetical order, AIA International Limited Taiwan Branch, Farglory Life Insurance Co., Ltd., Shin Kong Life Insurance Co., Ltd.,
Taiwan Life Insurance Co., Ltd. and TransGlobe Life Insurance Inc. Among them, Taiwan Life Insurance Co., Ltd., Farglory Life Insurance
Co., Ltd., and TransGlobe Life Insurance Inc. accounted for 19.35%, 17.15%, and 13.96% of our total net revenues in the
fiscal year ending December 31, 2019, respectively.
Anhou
The life insurance products Anhou distributes
can be broadly classified into the categories set forth below. Due to constant product innovation by insurance companies, some
of the insurance products Anhou distributes combine features of one or more of the categories listed below. Total net revenues
from life insurance products in the fiscal year of 2019 was approximately $ 8.03 million, accounting for approximately 94.25% of
Anhou’s total net revenues and approximately 8.37% of our total net revenues for the year ending December 31, 2019, respectively.
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Individual Whole Life Insurance. The individual whole life insurance products Anhou distributes provide insurance for the insured person’s entire life in exchange for the periodic payment of fixed premiums over a pre-determined period, generally ranging from five to 20 years, or until the insured reaches a certain age. The face amount of the policy or, for some policies, the face amount plus accumulated interest is paid upon the death of the insured.
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Individual Term Life Insurance. The individual term life insurance products Anhou distributes provide insurance for the insured for a specified time period or until the attainment of a certain age, in return for the periodic payment of fixed premiums over a pre-determined period, generally ranging from five to 20 years. Term life insurance policies generally expire without value if the insured survives the coverage period.
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Individual Endowment Life Insurance. The individual endowment products Anhou distributes generally provide maturity benefits if the insured reaches a specified age, and provide to a beneficiary designated by the insured guaranteed benefits upon the death of the insured within the coverage period. In return, the insured makes periodic payment of premiums over a pre-determined period, generally ranging from five to 25 years.
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Individual Annuity Insurance. The individual annuity insurance products Anhou distributes provide annual benefit payments after the insured attains a certain age, or for a fixed time period, and provide a lump payment at the end of the coverage period. In addition, the beneficiary designated in the annuity contract will receive guaranteed benefits upon the death of the insured during the coverage period. In return, the purchaser of the annuity products makes periodic payment of premiums during a pre-determined accumulation period.
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Individual Health Insurance. The individual health insurance products Anhou distributes primarily consist of critical illness insurance products, which provide guaranteed benefits for specified critical illnesses during the coverage period. In return, the insured makes periodic payment of premiums over a pre-determined period.
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The life insurance products Anhou distributed
in the year ending December 31, 2019 were primarily underwritten by, in alphabetical order, Aegon THTF Life Insurance Co., Ltd.,
AVIVA Life Insurance Co., Ltd., Evergrande Life Assurance Co., Ltd., Funde Sino Life Insurance Co., Ltd., Huaxia Insurance Co.,
Ltd., and Tianan Life Insurance Co., Ltd. None of these insurance company partners accounted for more than 10% of our total net
revenues for the year ended December 31, 2019.
In addition to the periodic premium payment
schedules described above, most of the individual life insurance products we distribute also allow the insured to choose to make
a single, lump-sum premium payment at the beginning of the policy term. If a periodic payment schedule is adopted by the insured,
a life insurance policy can generate periodic payment of fixed premiums to the insurance company for a specified period of time.
This means that once Anhou or the Taiwan Segment sells a life insurance policy with a periodic premium payment schedule, they will
be able to derive commission and fee income from that policy for an extended period of time, sometimes up to 25 years. Because
of this feature and the expected sustainable growth of life insurance sales in China and Taiwan, we have focused significant resources
on developing our capability to distribute individual life insurance products with periodic payment schedules since the inception
of Anhou and the Taiwan Segment. We expect that sales of life insurance products will continue to be our primary source of revenue
in the next several years.
Property and Casualty Insurance Products
The Taiwan Segment
The Taiwan Segment’s main property
and casualty insurance products are automobile insurance, casualty insurance, and liability insurance. The Taiwan Segment commenced
sale of automobile insurance, casualty insurance and liability insurance business in August 2003. Our total net revenues from
property and casualty insurance products in the fiscal year of 2019 year was approximately $5.25 million, accounted for approximately
6.04% of the Taiwan Segment’s total net revenues and approximately 5.47% of our total net revenues in the year ending December
31, 2019, respectively.
The property and casualty insurance products
the Taiwan Segment distributes can be further classified into the following categories:
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Automobile Insurance. The Taiwan Segment distributes both standard automobile insurance policies and supplemental policies, which we refer to as riders. The standard automobile insurance policies the Taiwan Segment sells generally have a term of one year and cover damages of the insured vehicle caused by collision and other traffic accidents, falling or flying objects, fire, explosion and natural disasters. The Taiwan Segment also sells standard third party liability insurance policies, which cover bodily injury and property damages caused by an accident involving an insured vehicle to a person not in the insured vehicle. The riders the Taiwan Segment distributes cover additional losses, such as liability to passengers, losses arising from vehicle theft and robbery, broken glass and vehicle body scratches.
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Casualty Insurance. The casualty insurance the Taiwan Segment distributes are primarily designed to insure any losses or damages to properties caused directly by accidents. The policy period is usually one year and the premium is generally calculated based on the insured amount.
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Liability Insurance. The liability insurance products the Taiwan Segment distributes are primarily designed to protect an individual or business from the risk that they may be sued and held legally liable for something, such as malpractice, third party injuries or negligence. The policy period is usually one year and the premium is generally calculated based on the insured amount.
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The property and casualty insurance products
the Taiwan Segment distributed in the year ending December 31, 2019 were primarily underwritten by, in alphabetical order, Fubon
Insurance Co., Ltd., Hotai Insurance Co., Ltd., Shinkong Insurance Co., Ltd., Taiwan Insurance Co. Ltd. and TLG Insurance Co. None
of these insurance company partners accounted for more than 10% of our total net revenues for the year ended December 31, 2019.
Anhou
Anhou’s main property and casualty
insurance products are automobile insurance and commercial property insurance. Anhou commenced its sale of commercial property
insurance in 2009 and developed its automobile insurance business in 2010. The total net revenues from property and casualty insurance
products distributed by Anhou in the 2019 fiscal year was approximately $0.49 million, accounted for approximately 5.75% of Anhou’s
total net revenues and approximately 0.51% of our total net revenues for the fiscal year ending December 31, 2019.
The property and casualty insurance products
Anhou distributes can be further classified into the following categories:
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Automobile Insurance. Automobile insurance is the largest segment of property and casualty insurance in the PRC in terms of gross written premiums. Anhou distributes both standard automobile insurance policies and supplemental policies, which we refer to as riders. The standard automobile insurance policies Anhou sells generally have a term of one year and cover damages caused to the insured vehicle by collision and other traffic accidents, falling or flying objects, fire, explosion and natural disasters. Anhou also sells standard third party liability insurance policies, which cover bodily injury and property damage caused by an accident involving an insured vehicle to a person not in the insured vehicle. The riders Anhou distributes cover additional losses, such as liability to passengers, losses arising from vehicle theft and robbery, broken glass and vehicle body scratches.
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Commercial Property Insurance. The commercial property insurance products Anhou distributes include basic, comprehensive and all risk policies. Basic commercial property insurance policies generally cover damages to the insured property caused by fire, explosion and thunder and lightning. Comprehensive commercial property insurance policies generally cover damages to the insured property caused by fire, explosion and certain natural disasters. All risk commercial property insurance policies cover all causes of damage to the insured property not specifically excluded from the policies.
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The property and casualty insurance products
Anhou distributed in the fiscal year ending December 31, 2019 were primarily underwritten by, in alphabetical order, China Pacific
(Group) Co., Ltd., Huatai P&C Insurance Co., Ltd., PICC Property and Casualty Co., Ltd., Ping An Insurance (Group) Company
of China, Ltd., and Tianan Property Insurance Co., Ltd. None of these insurance company partners accounted for more than 10% of
our total net revenues for the year ended December 31, 2019.
Strategic Alliance with AIATW
On June 10, 2013, AHFL entered into a Strategic Alliance Agreement
(the “Alliance Agreement”) with AIA International Limited Taiwan Branch (“AIATW”), the purpose of which
is to promote life insurance products provided by AIATW within Taiwan by insurance agency companies or insurance brokerage companies
affiliated with AHFL or CUII. The original term of the Alliance Agreement was from June 1, 2013 to May 31, 2018. Pursuant to the
terms of the Alliance Agreement, AIATW was required to pay AHFL an execution fee of $8,326,700 (NT$ 250,000,000) to be recorded
as revenue upon fulfilling sales target over the next five years. As of September 23, 2013, AHFL received $8,326,700 (NT$250,000,000)
from AIATW under the Alliance Agreement. Pursuant to the Alliance Agreement, AHFL was entitled to the payment of the execution
fee, subject to certain terms and conditions therein, including the satisfaction of the performance targets and the threshold 13-month
persistency ratio, which is an indicator of how long customers stay with their policies.
On September 30, 2014, AHFL entered into
an Amendment to the Alliance Agreement (the “First Amendment to the Alliance Agreement”) with AIATW. Pursuant to the
First Amendment to the Alliance Agreement, the expiration date of the Alliance Agreement was extended from May 31, 2018 to December
31, 2020. In addition, both AHFL and AIATW agreed to adjust certain terms and conditions set forth in the Alliance Agreement, including
the downward adjustment of the performance targets as well as the mechanism and formula calculating the execution fee to be refunded,
if any.
On January 6, 2016, AHFL entered into an
Amendment No. 2 to the Alliance Agreement (the “Second Amendment to the Alliance Agreement”) with AIATW to further
revise certain provisions in the Alliance Agreement and the previous amendment entered into by and between AHFL and AIATW.
Pursuant to the Second Amendment to the
Alliance Agreement, the expiration date of the Alliance Agreement was extended from May 31, 2018 to December 31, 2021, and the
effect of the Alliance Agreement during the period from October 1, 2014 to December 31, 2015 was suspended. In addition, both AHFL
and AIATW agree to adjust certain terms and conditions set forth in the Alliance Agreement, among which are to: (i) expand the
scope of services to be provided by AHFL to AIATW to include, without limitation, assessment and advice on suitability of cooperative
partners, advice on product strategies suitable for promotion channel development, advice on promotion/sales channel improvement,
advice on promotion channel marketing and strategic planning, and promotion channel talent training; and (ii) remove certain provisions
related to performance milestones and refund of execution fees. On March 15, 2016, AHFL unilaterally issued a confirmation letter
to AIATW (the “2016 Letter”), where it emphasized its commitment to achieve certain sales targets within a specific
time frame and covenanted to refund a certain portion of execution fees calculated based on the formula therein upon failure to
achieve such sales target, as applicable.
On June 14, 2017, AHFL entered into an
Amendment No. 3 to the Alliance Agreement (the “Third Amendment to the Alliance Agreement) with AIATW to further revise certain
provisions in the Alliance Agreement and the previous amendments to the Alliance Agreement entered into by and between AHFL and
AIATW.
Pursuant to the Third Amendment to the
Alliance Agreement, except for the first contract year (April 15, 2013 to September 30, 2014), the sales targets for the remaining
contract term under the Alliance Agreement shall be changed by reference to (i) the amount of the value of new business (“VONB”)
and (ii) the 13-month persistency ratio as set forth therein, provided that to the extent any underlying insurance contract is
revoked, invalid or terminated and premiums is refunded to such policyholder, the amount of the related VONB shall be correspondingly
reduced. Both AHFL and AIATW agreed to calculate the business promotion fees (equivalent to the “execution fee” referred
above) to be returned in case of failure to achieve the sales targets or the fees to be increased in case of exceeding the sales
targets, as the case may be, based on two formulas specified in the Third Amendment to the Alliance Agreement. The primary factor
under formula one focuses on the annual and/or accumulated achievement rate(s), while the primary factor under formula two focuses
on the 13-month persistency ratio(s), subject to terms and conditions therein. The expanded scope of services to be provided by
AHFL to AIATW as set forth in Section 4 of the Second Amendment to the Alliance Agreement is removed under the Third Amendment
to the Alliance Agreement as well.
On June 14, 2017, with AIATW's consent, the 2016 Letter was
revoked in order to conform to the latest terms and conditions regarding the cooperation between AHFL and AIATW as set forth in
the Third Amendment to the Alliance Agreement.
Online Business
In recent years, the online insurance business
has experienced rapid growth. Many insurance companies, portal websites, and professional insurance intermediaries have begun launching
its e-commerce platforms, providing real-time information to consumers and allowing consumers to directly complete transactions
online. Law Broker began developing its online platform in 2016, and became the first brokerage company to receive formal approval
from the Financial Supervisory Commission of Taiwan (“FSC”) to commence online business on May 9, 2016. The platform,
SARAcares (website: https://www.saracares.com.tw), was launched on January 26, 2017. It offers a broad range of insurance products
underwritten by multiple insurance companies, policy comparison features, and post-sale services that are backed by our online
service staffs and nationwide sales network. As required by the relevant laws and regulations regarding e-commerce provided by
the FSC, Law Broker has obtained the ISO 27001 certification of Information Security Management System (ISMS) and BS 10012 certification
of Personal Information Management System since June 20, 2017. Our online business in Taiwan was still at a nascent stage with
the majority of the sales still being completed by off-line agents as of the date of this annual report.
Unified Operating Platform
Law Broker has self-constructed a Unified
Operating Platform, an information technology infrastructure that serves to enhance operational, sales processes, and administrative
efficiency. Since Law Broker’s establishment in 1992, it has successfully implemented the following components of its operating
platform across its branch offices in Taiwan through a hub center located in Taipei:
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A centralized client and insurance policy management and analysis system, which encompasses our life insurance unit and property and casualty insurance unit, that will better support business operations and facilitate risk control;
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A centralized client relations management system, that manages and analyzes client interactions to drive sales growth;
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An integrated administrative and information system, that increases the management efficiency among the subsidiaries, branches and sales departments;
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A centralized and computerized accounting and financial management system, that improves the efficiency of commission distribution and enforcement;
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A human resources management and performance tracking system; and
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An e-training system to provide online trainings to sales professionals.
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The Unified Operating Platform has
proved to be an efficient and streamlined operating system which has contributed to the successful expansion and growth of
Law Broker into one of the leading insurance brokerage companies in Taiwan, with 35 sales and service outlets (including the
headquarters) across Taiwan and 2,857 insurance sales professionals as of December 31, 2019. Law Broker, Uniwill Insurance
Broker Co., Ltd. (“Uniwill Insurance Broker”) and Joint Insurance Broker Co., Ltd. (“Joint
Insurance”) have a total of 51 sales and service outlets (including the headquarters) across Taiwan and 4,161 insurance
sales professionals as of December 31, 2019.
In accordance with our growth strategy
in China, Anhou has made significant effort to adapt the Unified Operating Platform utilized by Law Broker to better meet the operational
need in China. Since September 2010, Anhou has successfully implemented the tailored operating platform across the PRC subsidiaries
through a hub center located in Nantong, Jiangsu province. We expect that this tailored operating platform will make selling easier
for sales agents in China, facilitate standardized business and financial management, enhance risk control and increase operational
efficiency for the PRC subsidiaries.
Anhou has tailored and refined the platform
on the basis of Law Broker’s well-developed operating platform in Taiwan and believes that it is difficult for our competitors
in China, particularly new market entrants, to reproduce a similar platform without substantial financial resources, time and operating
experience.
Because the various systems, policies and
procedures under both of operating platforms utilized by Law Broker and Anhou can be rolled out quickly as we enter new regions
or make acquisitions, we believe we can expand our distribution network rapidly and efficiently while maintaining the quality of
our services.
Distribution and Service Network and
Marketing
The Taiwan Segment had a total of 51 sales
and service outlets (including the headquarters) across Taiwan as of December 31, 2019, among which, 17 were located in the northern
region, 25 in the central region, 7 in the southern region and 2 in the eastern region. As of December 31, 2019, Law Broker, Uniwill
Insurance Broker and Joint Insurance together had 250 administrative staff members.
The Taiwan Segment markets and sells life
insurance products, property and casualty insurance products directly to the targeted customers through the sales professionals,
who are independent contractors, not its employees.
Since Anhou’s establishment in
2003, it has devoted substantial resources in building up its distribution and service network in the PRC. Anhou has targeted
its distribution and service network in provinces with most population in China, such as Henan, Jiangsu, Sichuan, Fujian, and
Guangdong. As of December 31, 2019, Anhou had one insurance agency and one insurance brokerage firm, with 1,856 sales
professionals and 100 administrative staff members operating across 37 cities within these five provinces.
Anhou markets and sells life insurance
products, property and casualty insurance products directly to the targeted customers through the sales agents, who are independent
contractors, not its employees.
Customers
Due to its extensive line of insurance
products underwritten by the insurance companies in Taiwan, the Taiwan Segment managed to offer a variety of insurance products
to customers of different ages or professions. Despite relatively healthy government-sponsored retirement and medical programs,
more and more Taiwanese, especially those with stable financial means and desire for high-end retirement life, have been focusing
on endowment and medical commercial insurance products, while the investment insurance products have been playing a less significant
role since the economic downturn.
In addition, from time to time, the Taiwan
Segment has been, either voluntarily or upon request of insurance companies, advising insurance companies or providing feedback
on particular types of insurance products before they are put on the market. This interaction with insurance companies has not
only enhanced the close cooperation between the Taiwan Segment and the insurance companies, but also gives it an edge in understanding
the in-depth features of such insurance products for marketing and distribution purposes.
The Taiwan Segment sells automobile insurance
and casualty insurance primarily to individual customers and liability insurance to institutional customers.
Anhou sells automobile insurance and individual
accident insurance primarily to individual customers and commercial property insurance to institutional customers.
The revenues of Anhou are primarily generated
from the sale of life insurance products and we expect the continuous growth in this sector, as more and more customers in China
realized the insufficiency of the mandatory social insurance coverage and the necessity to supplement it with commercial insurance.
Insurance Company Partners
We are selective in terms of choosing insurance
companies as our partners. We take into consideration a variety of factors, such as the reputation and integrity of the insurance
company, the quality and competitiveness of insurance products offered, the prudence and health of the financial standing of the
insurance company as well as the complexity and efficiency of claim adjustment and settlement. Both the Taiwan Segment and Anhou
have formed strategic relationships with numerous insurance companies in Taiwan and China, respectively.
In the fiscal year ended December 31, 2019,
the Taiwan Segment’s major insurance company partners in Taiwan, after aggregating the business conducted between the Taiwan
Segment and the various local branches of the insurance companies, were AIA International Limited Taiwan Branch, Farglory Life
Insurance Co., Ltd., Shin Kong Life Insurance Co., Ltd., Taiwan Life Insurance Co., Ltd. and TransGlobe Life Insurance Inc., arranged
in alphabetical order. Among them, Taiwan Life Insurance Co., Ltd., Farglory Life Insurance Co., Ltd., and TransGlobe Life Insurance
Inc., accounted for approximately 19.35%, 17.15%, and 13.96% of the Company’s total net revenues for the year ended December
31, 2019, respectively.
In the fiscal year ended December 31, 2019,
Anhou’s major insurance company partners, after aggregating the business conducted between Anhou and the various local branches
of the insurance companies were Aegon THTF Life Insurance Co., Ltd., AVIVA Life Insurance Co., Ltd., Evergrande Life Insurance
Company Limited, Funde Sino Life Insurance Co., Ltd., Huaxia Insurance Co., Ltd., and Tianan Life Insurance Co., Ltd., arranged
in alphabetical order. None of these insurance company partners accounted for more than 10% of our total net revenues for the year
ended December 31, 2019.
Competition
A number of industry players are involved
in the distribution of insurance products in Taiwan and PRC. We compete for customers on the basis of product offerings, customer
services and reputation. Because we primarily distribute individual insurance products, our principal competitors include:
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Professional insurance intermediaries. Life insurance is our core business and has a strong regional feature. Through years of business development, we believe that we can compete effectively with other insurance intermediary companies as we have a longer operational history and over the years have assembled a strong and stable team of managers and sales professionals. With the implementation of our unified operating platform, we believe that we could strengthen our lead in our developed local regions and expand our operation to our newly selected areas. However, with increasing consolidation expected in the insurance intermediary sector in the coming years, we expect competition within this sector to intensify.
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Insurance companies. The distribution of individual life insurance products in Taiwan and China historically has been dominated by insurance companies, which usually use both in-house sales force and exclusive sales agents to distribute their own products. We believe that we can compete effectively with insurance companies because we focus only on distribution and offer our customers a broad range of insurance products underwritten by multiple insurance companies.
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Other business entities. In recent years, business entities that distribute insurance products as an ancillary business, primarily commercial banks and postal offices have been playing an increasingly important role in the distribution of insurance products, especially life insurance products. However, the insurance products distributed by these entities are usually confined to those related to their main lines of business, such as investment-related life insurance products. We believe that we can compete effectively with these business entities because we offer our customers a broader variety of products.
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Law Broker is one of the leading insurance
brokerage firms in Taiwan. The Taiwan Segment had a total of 51 sales and service outlets (including the headquarters) across Taiwan
as of December 31, 2019, among which, 17 were located in the northern region, 25 in the central region, 7 in the southern region
and 2 in the eastern region. As of December 31, 2019, Law Broker, Uniwill Insurance Broker and Joint Insurance together had 250
administrative staff members. Other than insurance companies and commercial banks, the Taiwan Segment’s primary competitors
are Taiwan insurance brokerage companies of relatively large size, such as Everpro Insurance Brokers Co., Ltd.
During the past 16 years, Anhou has expanded
its business across 37 cities within Henan, Sichuan, Jiangsu, Fujian, and Guangdong provinces with 1,856 sales professionals and
100 administrative staff members. Based on the insurance products Anhou is offering and the geographic areas of its branch offices,
Anhou’s primary competitors are small-sized and middle-sized insurance agency companies. Anhou is relatively larger in terms
of the number of salesmen as well as the sales revenue comparing to those competing insurance agency companies.
Awards and Recognitions
Through years of operation, Law Broker
has been recognized by various organizations and government entities for its best practices in the industry. Especially noteworthy
is the “Taiwan Insurance Excellence Award”, the highest acclaim in the Taiwan insurance industry, co-sponsored by the
Taiwan Insurance Institute, FSC and Taiwan Consumer Protection Committee.
Year of Award
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Award/Recognition
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2019
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Eighth Taiwan Insurance Excellence Award
Excellence in Talent Training Award–Gold Medal
Excellence in Corporate Social Responsibility Award–Gold
Medal
Excellence in Digital Application Award–Silver Medal
Excellence in Customer Service–Silver Medal
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2017
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Seventh Taiwan Insurance Excellence Award
Excellence in Talent Training Award–Gold Medal
Excellence in Corporate Social Responsibility Award–Silver Medal
Excellence in Digital Application Award–Silver Medal
Excellence in Customer Service–Silver Medal
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2015
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Sixth Taiwan Insurance Excellence Award
Excellence in Talent Training Award–Silver Medal
Excellence in Customer Service–Silver Medal
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2013
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Fifth Taiwan Insurance Excellence Award
Excellence in Digital Application Award–Gold Medal
Excellence in Talent Training Award–Silver Medal
Excellence in Customer Service–Silver Medal
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2011
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Fourth Taiwan Insurance Excellence Award
Excellence in Talent Training Award
Excellence in Customer Service
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Intellectual Property
To protect our intellectual property, we
rely on a combination of trademark, copyright and trade secret laws as well as confidentiality agreements with our employees, sales
agents, independent contractors and others.
Law Enterprise and Law Broker jointly own
the following trademarks registered in Taiwan:
the Service Mark of Law Insurance
Broker Co., Ltd. under the registration number 01462327, with a 10-year validity from June 16, 2011 to June 15, 2021;
the logo of Law Insurance Broker
Co., Ltd. under the registration number 01604254, with a 10-year validity from October 16, 2013 to October 15, 2023;
the logo of Blue Magpie (藍鵲),
under the registration number 01462329, with a 10-year validity from June 16, 2011 to June 15, 2021;
the logo of Law (錠嵂)
under the registration number 01462328, with a 10-year validity from June 16, 2011 to June 15, 2021;
the logo of Law (錠嵂)
under the registration number 01611772, with a 10-year validity from December 1, 2013 to November 30, 2023;
the logo of Bao Xian Tong and
INS under the registration number 01580261 , with a 10-year validity from May 16, 2013 to May 15, 2023; and
the logo of Magpie Baby under
the registration number 01518573 , with a 10-year validity from May 16, 2012 to May 15, 2022.
the logo of Magpie Baby 2.0 under
the registration number 01763557, with a 10 year validity from April 1, 2016 to March 31, 2026; and
the logo of SARACARES under
the registration number 01876419 , with a 10 year validity from October 16, 2017 to October 15, 2027
Law Broker has the following
registered trademarks in Taiwan. All of the trademarks will be renewed for another 10-year before their respective expiry:
the logo of Blue Magpie Cycling
Team Fleet, under the registration number 01340567, with a 10-year validity from December 1, 2018 to November 30, 2028;
the logo of Law Insurance Broker
under the registration 01340565, with a 10-year validity from December 1, 2018 to November 30, 2028;
the logo of Law Blue Magpie under
the registration number 01340566, with a 10-year validity from December 1, 2018 to November 30, 2028;
the logo of Symbiosis, Co-cultivation
Co-Prosperity and Law Blue Magpie Picture under the registration number 01317020, with a 10-year validity from July 1, 2018 to
June 30, 2028;
the logo of Education Training
Blue Magpie under the registration number 01313467, with a 10-year validity from June 1, 2018 to May 31, 2028;
the logo of Cartoon Blue Magpie
under the registration number 01313464, with a 10-year validity from June 1, 2018 to May 31, 2028;
the logo of Little Blue Magpie
under the registration number 01313468, with a 10-year validity from June 1, 2018 to May 31, 2028;
the logo of Triumph Blue Magpie
under the registration number 01313465, with a 10-year validity from June 1, 2018 to May 31, 2028;
the logo of Blue Magpie Fleet
Picture under the registration number 01310350 , with a 10-year validity from May 1, 2018 to April 30, 2028; and
the logo of Fighting Blue Magpie
under the registration number 01313466, with a 10-year validity from June 1, 2018 to May 31, 2028.
Jiangsu Law has one registered
trademark in China, the logo of Jiangsu Law:
Employees
As of December 31, 2019, Law Broker,
Uniwill Insurance Broker and Joint Insurance together had 250 administrative staff members and Anhou has 100 full-time
employees. Our employees are not represented by any collective bargaining agreement. We believe that we have good relations
with our employees and we have never experienced a work stoppage.
Segments
The Company currently operates as three
reporting segments. Revenues, net income and total assets can be found in Item 8 of Part II, “Financial Statements and Supplementary
Data” of this Annual Report on Form 10-K.
Regulation
Taiwan Regulations of the Insurance
Industry
The insurance industry in Taiwan is highly
regulated. The FSC, is the regulatory authority responsible for the supervision of the insurance industry in Taiwan. Insurance
activities undertaken within Taiwan are primarily governed by the Insurance Law and the related rules and regulations.
Taiwan Insurance Law
The current principal regulation governing
insurance in Taiwan is the Insurance Law, most recently amended on January 16, 2019 by Legislative Yuan, which provided the basic
framework for regulating the insurance industry.
The Taiwan Insurance Law defines
several participants in the insurance industry, such as insurer, insurance agency, insurance brokerage and insurance
adjustor. It established requirements for form of organization, and qualifications and procedures to establish an insurance
organization as well as separation of property insurance and life insurance. The Taiwan Insurance Law distinguishes insurance
between fire disaster, marine, land and air, liability, surety, and other casualty and property insurance on one hand, and
life insurance, health insurance, casualty insurance and annuity on the other. Unless permitted by the FSC, insurance
companies are not allowed to engage in both types of insurance businesses.
The insurers, insurance agencies, insurance
brokerages and insurance adjustors must join the related industry associations, or they are prohibited from conducting business
operation. An insurance agency company or broker company of certain sizes shall establish internal control and audit systems as
well as business solicitation systems and procedures.
Taiwan FSC
The Taiwan FSC is in charge of the financial
market and financial service industries, among the insurance industry and has the power to control the following items:
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Financial system and supervision policy.
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The preparation, amendment and abolishment of financial laws and regulations.
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Supervision and management of the financial institutions, including its establishment, revocation, abolishment, change, merger, dissolution, and business scope.
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Development, supervision and management of financial market.
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Inspection of financial institution.
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Inspection on public listing company related to their securities market-related matters.
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Foreign financial matters.
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Protection of financial customers.
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Dealing and penalizing the violation of related laws and regulations of finance.
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Collection of and analysis on relevant statistic data related to financial supervision, management and inspection.
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Other matters related to financial supervision, management and inspection.
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Regulation of Insurance Brokers and
Brokerage Companies
The current principal regulation governing insurance
brokers and brokerage companies is the Regulations Governing Insurance Brokers last amended on November 18, 2019 by Insurance
Bureau of FSC (the “Broker Rule”). An insurance broker stipulated under the Insurance Law refers to a person who
negotiates to conclude an insurance contract on behalf of the insured and charges fees from the insured. Depending on their
focused insurance areas, i.e. property or life insurance, insurance brokers can be divided into property insurance brokers
and life insurance brokers. No matter what insurance industry an insurance broker is engaged in, it must have one of the
following qualifications: (1) have passed the insurance brokerage examination for professional and technical staff; (2) have
passed the insurance brokerage qualification test; or (3) have obtained the insurance brokerage practitioner certificate and
practiced the same business.
There are special requirements for Taiwan
insurance brokerage companies, such as the name of an brokerage company must contain the words “insurance broker”;
when an brokerage company applies to operate brokerage business, the minimum registered capital must be at least NT$5 million ($157,953)
fully paid up in cash, according to which, insurance brokerage companies with business license obtained prior to the implementation
of this latest Broker Rule shall adjust their registered capital within five years upon the its implementation.
The Practitioner Certificate
The insurance broker practitioner certificate
is valid for five years, and must be renewed before expiration. In case a broker has the qualifications for both property insurance
and life insurance, he may obtain both insurance brokerage practitioner certificates.
Education and Training
There are two types of education and training
for an insurance broker, pre-vocational and on-the-job education and training. An insurance broker must attend pre-vocational education
and training for at least 32 hours during the year prior to applying for practicing insurance broker business and on-the-job education
and training for at least 16 hours with law courses for no less than 8 hours per year, commencing after one year from the issuance
of this latest Broker Rule.
Management of Insurance Brokerages
The rules describing how to conduct brokerage
business concentrate on the concept that the brokerages must take care of customers' matters in good faith. To ensure that this
concept is properly carried out, the rules require insurance brokerage companies must have legal compliance officers who have one
of the following qualifications: (1) are qualified to be insurance agents or brokers and have worked as actual signatories; (2)
have five years working experience in the insurance industry, insurance agency or insurance brokerage; or (3) have graduated from
college and university departments related to insurance or law with more than three years working experience in insurance industry,
insurance agency or insurance brokerage.
Regulation of Insurance Salespersons
The current principal regulation
governing individual insurance salespersons is the Rules on the Administration of Insurance Salespersons latest amended on
April 6, 2016 by Insurance Bureau of FSC (the “Salesperson Rule”). An insurance salesperson falling under the
Insurance Law refers to a person who is engaged in attracting insurance business for insurance companies, insurance brokerage
companies and insurance agency companies. A salesperson is not allowed to attract business for the company he belongs to
unless he has completed the registration in accordance with the Salesperson Rules and has obtained the registration
certificate. In order to obtain the registration certificate, an insurance salesperson must be at least 20 years old and has
at least graduated from a senior high school or a senior vocational school or have an equivalent educational background. In
addition, the salesperson must meet one of the following requirements: (1) passed the salesperson qualification examination
held by relevant associations; or (2) have a valid the registration certificate. Once the salespersons passed the
qualification examination, the relevant association will notify the company where the salesperson works, then the company
will issue a registration certificate for the salesperson and file such registration certificate with the relevant
authorities. The registration certificate is valid for five years and must be renewed before expiration. The salesperson must
present the registration certificate before they start attracting insurance business. Unless approved by the company, the
salesperson may not work for any other insurance company, insurance brokerage company or insurance agency company. The
company supervises the work of the salesperson and is joint and severally liable for any damage caused by its
salesperson.
Education and Training
Salespersons must attend in education and
training held by their companies every year, or the companies shall revoke the registration certificates of those who fail to attend
such education and training.
The Salesperson Rule also stipulates the
proper ways and manners to be followed by the salespersons in conducting their businesses and specifies the penalties in case of
their violation of the Salesperson Rule.
Taiwan Regulations on Foreign Exchange
Foreign exchange regulation in Taiwan is
primarily governed by the Ordinance of Foreign Exchange Administration, latest amended on April 29, 2009 (the “Foreign Exchange
Ordinance”). Under the Foreign Exchange Ordinance, foreign exchange refers to foreign currency, bills and marketable securities.
The authority managing the administration of foreign exchange is Ministry of Finance of Republic of China, while the authority
managing the practical operation of foreign exchange business is Central Bank of Republic of China. The Foreign Exchange Ordinance
also specifies the allocated power of Ministry of Finance and Central Bank, respectively. To the extent that any foreign exchange
receipts, payments or transactions reach the threshold of NT$500,000 ($16,653) or equivalent in foreign currency, it must be reported
to the Central Bank or its designated authorities. Upon incurrence of any of the following events, the State Council of Republic
of China may determine and announce that for a period of time, to close the foreign exchange market, suspend or restrict all or
partial foreign exchange payment, order a mandatory sale or deposit of all or partial foreign exchange into a designed bank, or
dispose in any other manner as it deems necessary:
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·
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the disorder in domestic or international economy to the detriment of the stability of Taiwan’s economy; or
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Taiwan suffers serious trade deficit.
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Taiwan Regulation on Foreign Investment
The current principal regulation governing
foreign investment is Statute For Investment By Foreign Nationals latest amended on November 19, 1997 (the “Investment Statute”).
Under the Investment Statute, investment refers to any activities involving (1) holding share capital of a company incorporated
in Taiwan; (2) establishing branches, wholly-owned or partnership enterprises in Taiwan; or (3) providing loans of longer than
one-year terms to the above-mentioned investee enterprises. The authority in charge of foreign investment is Ministry of Economic
Affairs of Republic of China. The industries in Taiwan are categorized into permitted, restricted and prohibited foreign investment
areas. Investors may apply for settlement of exchange in accordance with the annual yield of their investment or the allocation
of surplus.
Eminent Domain
When the investment made by an investor
constitutes less than 45% of the total amount of capital of the investee enterprise, and the investee enterprise has been expropriated
or acquired by the government for the purpose of national defense, reasonable government compensation shall be paid to the investors.
However, if the capital contribution made by the investor constitutes at least 45% of the total amount of capital of the investee
enterprise and continues remaining above 45% for two decades since its establishment, then the government may not exercise its
eminent domain power over such investee enterprise.
Taiwan Regulations on Tax
The current principal regulations governing
tax in Taiwan include the following:
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Income Tax Law, latest amended on February 7, 2018;
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The Implementation Rules of Income Tax Law, latest amended on June 29, 2018;
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Value-Added and Non-Value-Added Business Tax Law, latest amended on June 14, 2017; and
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The Enforcement Rules of Value-Added And Non-Value-Added Business Tax Law, latest amended on June 25, 2018.
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Under the Income Tax Law, there are two
kinds of income tax, comprehensive income tax for individuals and income tax for enterprises operating for profit, respectively.
Individuals who have income with a source
within Taiwan must pay comprehensive income tax on their income sourced within Taiwan; while non-resident individuals having income
with a source within Taiwan, except otherwise provided in the Income Tax Law, shall pay tax based on the amount attributable to
the sources of their income.
The enterprise with head office located
in Taiwan shall pay profit-seeking income tax on its global income both within and outside Taiwan; while the enterprises with
head office outside Taiwan shall only pay profit-seeking income tax on its business income sourced from within Taiwan.
Rates of Income Tax
The individual comprehensive income tax
exemption threshold is NT$120,000 per person per year. Any income beyond such exemption threshold is subject to a progressive tax
rate ranging from 5% to 40%.
With respect to enterprises operating for
profit, the exemption threshold is NT$120,000. Any income beyond such exemption threshold is subject to a progressive tax rate
ranging from 18% to 20% on its taxable income.
Sale of goods or services, import of goods
in Taiwan are subject to a Value-Added or Non-Value-Added Business Tax. The Rate of business tax, except as otherwise stipulated
in the relevant tax law, ranges from 5% to 10% as determined by the State Council of Taiwan.
PRC Regulations of the Insurance
Industry
The insurance industry in the PRC is highly
regulated. CIRC is the regulatory authority responsible for the supervision of the Chinese insurance industry. Insurance activities
undertaken within the PRC are primarily governed by the Chinese Insurance Law and the related rules and regulations.
Initial Development of Regulatory Framework
The Chinese Insurance Law was enacted in
1995. This original insurance law, which we refer to as the 1995 Insurance Law, provided the initial framework for regulating the
domestic insurance industry. Among the steps taken under the 1995 Insurance Law were the following:
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(a)
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Licensing of insurance companies and insurance intermediaries, such as agencies and brokerages. The 1995 Insurance Law established requirements for minimum registered capital levels, form of organization, qualification of senior management and adequacy of the information systems for insurance companies, insurance agencies and brokerages.
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(b)
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Separation of property and casualty insurance and life insurance. The 1995 Insurance Law distinguished insurance between property, casualty, liability and credit insurance businesses, on the one hand, and life, accident and health insurance businesses on the other, and prohibited insurance companies from engaging in both types of businesses.
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(c)
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Regulation of market conduct by participants. The 1995 Insurance Law prohibited fraudulent and other unlawful conduct by insurance companies, agencies and brokerages.
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(d)
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Substantive regulation of insurance products. The 1995 Insurance Law gave insurance regulators the authority to approve the policy terms and premium rates for certain insurance products.
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(e)
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Financial condition and performance of insurance companies. The 1995 Insurance Law established reserve and solvency standards for insurance companies, imposed restrictions on investment powers and established mandatory reinsurance requirements, and put in place a reporting regime to facilitate monitoring by insurance regulators.
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(f)
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Supervisory and enforcement powers of the principal regulatory authority. The principal regulatory authority, then the People’s Bank of China, was given broad powers under the 1995 Insurance Law to regulate the insurance industry.
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Establishment of the CIRC and 2002 Amendments
to the Insurance Law
China’s insurance regulatory regime
was further strengthened with the establishment of the CIRC in 1998. The CIRC was given the mandate to implement reform in the
insurance industry, minimize insolvency risk for Chinese insurers and promote the development of the insurance market.
The 1995 Insurance Law was amended in 2002
and the amended insurance law, which we refer to as the 2002 Insurance Law, became effective on January 1, 2003. The major amendments
to the 1995 Insurance Law include:
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(a)
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Authorizing the CIRC to be the insurance supervisory and regulatory body nationwide. The 2002 Insurance Law expressly grants the CIRC the authority to supervise and administer the insurance industry nationwide.
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(b)
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Expanding the permitted scope of business of property and casualty insurers. Under the 2002 Insurance Law, property and casualty insurance companies may engage in the short-term health insurance and accident insurance businesses upon the CIRC’s approval.
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(c)
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Providing additional guidelines for the relationship between insurance companies and insurance agents. The 2002 Insurance Law requires an insurance company to enter into an agent agreement with each insurance agent that will act as an agent for such insurance company. The agent agreement sets forth the rights and obligations of the parties to the agreement as well as other matters pursuant to law. An insurance company is responsible for the acts of its agents when the acts are within the scope authorized by the insurance company.
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(d)
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Relaxing restrictions on the use of funds by insurance companies. Under the 2002 Insurance Law, an insurance company may use its funds to make equity investments in insurance-related enterprises, such as asset management companies.
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(e)
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Allowing greater freedom for insurance companies to develop insurance products. The 2002 Insurance Law allowed insurance companies to set their own policy terms and premium rates, subject to the approval of, or a filing with, the CIRC.
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2009 Amendments to the Insurance Law
The 2002 Insurance Law was amended again
in 2009 and the amended insurance law, which we refer to as the 2009 Insurance Law, became effective on October 1, 2009. The major
amendments to the 2002 Insurance Law include:
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(a)
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Strengthening protection of the insured’s interests. The 2009 Insurance Law added a variety of clauses such as incontestable clause, abstained and estoppel clause, common disaster clause and amending immunity clause, claims-settlement prescription clause, reasons for claims rejection and contract modification clause.
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(b)
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Strengthening supervision on the qualification of the shareholders of the insurance companies and setting forth specific qualification requirements for the major shareholders, directors, supervisors and senior managers of insurance companies.
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(c)
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Expanding the business scope of insurers and further relaxing restriction on the use of fund by insurers.
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(d)
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Strengthening supervision on solvency of insurers with stricter measures.
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(e)
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Tightening regulations governing the administration of insurance intermediary companies, especially those relating to behaviors of insurance agents.
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According to the 2009 Insurance Law, the
minimum registered capital required to establish an insurance agency or insurance brokerage as a company must comply with the PRC
Company Law. The registered capital or the capital contribution of insurance agencies or insurance brokerages must be paid-up capital
in cash. The 2009 Insurance Law also sets forth some specific qualification requirements for insurance agency and brokerage practitioners.
The senior managers of insurance agencies or insurance brokerages must meet specific qualification requirements, and their appointments
are subject to approval of the CIRC. Personnel of an insurance agency or insurance brokerage engaging in the sales of insurance
products must meet the qualification requirements set by the CIRC and obtain a qualification certificate issued by the CIRC. Under
the 2009 Insurance Law, the parties to an insurance transaction may engage insurance adjusting firms or other independent appraisal
firms that are established in accordance with applicable laws, or persons who possess the requisite professional expertise, to
conduct assessment and adjustment of the insured subject matters. Additionally, the 2009 Insurance Law specifies additional legal
obligations for insurance agencies and brokerages.
The 2009 Insurance Law was revised
again on April 24, 2015, hereinafter the “2015 Insurance Law”, with an aim to further eliminate various
administrative approvals as well as grant more market discretion to participants, among which, (i) the requirement of prior
approval by CIRC to establish an insurance agency or an insurance brokerage; (ii) the requirement on personnel or senior
managers of an insurance agency or an insurance brokerage to obtain certain relevant qualification certificate; or (iii) the
requirement of prior approval for split, merger or change of organizational form of an insurance agency company or an
insurance brokerage company.
The CIRC
The CIRC has extensive authority to supervise
insurance companies and insurance intermediaries operating in the PRC, including the power to:
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(a)
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promulgate regulations applicable to the Chinese insurance industry;
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(b)
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investigate insurance companies and insurance intermediaries;
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(c)
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establish investment regulations;
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(d)
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approve policy terms and premium rates for certain insurance products;
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(e)
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set the standards for measuring the financial soundness of insurance companies and insurance intermediaries;
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(f)
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require insurance companies and insurance intermediaries to submit reports concerning their business operations and condition of assets; order the suspension of all or part of an insurance company or an insurance intermediary’s business;
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(g)
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approve the establishment, change and dissolution of an insurance company, an insurance intermediary or their branches;
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(h)
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review and approve the appointment of senior managers of an insurance company, an insurance intermediary or their branches; and
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(i)
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take enforcement actions against improper behaviors or misconducts of an insurance company or an insurance intermediary.
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Regulations of Insurance Agencies
The principal regulation governing
insurance agencies is the Provisions on the Supervision and Administration of Specialized Insurance Agencies (the
“Agency Provisions”) promulgated by the CIRC on September 25, 2009 and effective on October 1, 2009, which
replaced the Provisions on the Administration of Insurance Agencies issued by the CIRC on December 1, 2004 and effective on
January 1, 2005. According to the Agency Provisions, the establishment of an insurance agency is subject to minimum
registered capital requirement and other requirements and the approval of the CIRC. The term “insurance agency”
refers to an entity that engages in insurance agency business within the authorization of, and collects commissions from,
insurance companies, including the professional insurance agency companies and their branches. The insurance agency shall
meet the qualification requirements specified by the CIRC, obtain the license to conduct an insurance agency business with
the approval of the CIRC. An insurance agency may take any of the following forms: (i) a limited liability company; or (ii) a
joint stock limited company. An insurance agency must have a registered capital of at least RMB2 million ($313,332). Where it
is established as a nationwide company, its registered capital must be at least RMB10 million ($1,566,661). The registered
capital must be paid up in cash. On April 27, 2013, CIRC issued the Decision on Revising the Agency Provisions (the
“2013 Agency Provisions”), pursuant to which, CIRC has mandated any insurance agency established subsequent to
the Decision on Revising the Agency Provisions to meet a minimum registered capital requirement of RMB50 million ($8.1
million). On October 19, 2015, CIRC issued the Decision on Revising Eight Regulations including Provisions on Insurance
Companies Setting up Offshore Insurance Organizations, which made certain revisions to the 2013 Agency Provisions (the
“2015 Agency Provisions”), among which, (i) eliminate the requirement of prior approval by CIRC to establish an
insurance agency; (ii) eliminate the requirement on personnel or senior managers of an insurance agency to obtain certain
relevant qualification certificate; or (iii) eliminate the requirement of prior approval by CIRC on split, merger or change
of organizational form of an insurance agency company.
On May 16, 2013, CIRC issued the 2013 Notice,
pursuant to which, professional insurance agency established prior to the issuance of the Decision on Revising the Agency Provisions,
with registered capital less than RMB50 million ($8.1 million), can operate their existing business within the provinces where
they have the registered office or branch office, but shall not set up any new branches in any province where they do not have
the registered office or any branch office.
On April 20, 2012, Anhou obtained the nationwide
license from CIRC, pursuant to which Anhou may set up its branch office across the PRC to carry out the insurance agency business
with no further approval requirement from CIRC other than filing with the local CIRC at the provincial level.
With the promulgation and implementation
of the above-mentioned regulations, we expect a better regulated insurance agency market in China with orderly competition and
pursuit for professional excellence, which will accentuate our competitive advantage due to our continuous commitment to quality
service. On October 24, 2013, Anhou increased its registered capital to RMB50 million. We believe that we will be in a better position
to obtain the full support expressly provided in the 2013 Notice from the local CIRC on our expansion strategy nationwide.
On September 17, 2015, CIRC issued
Opinions on Deepening the Reformation of Insurance Intermediary Market (the “Reformation Opinions”), pursuant to
which, CIRC will take further actions to simplify unnecessary administrative procedures, among which, the elimination of 8
administrative approvals, including the cancellation of previously required qualification certificate for insurance
salesperson, the previously required approval for the split, merger, organizational change, set-up of branch office and exit
of insurance agency and brokerage company. CIRC will also focus on (i) improving management over entry into and exit from
insurance intermediary market and setting up a multilayered service system; (ii) encouraging and pushing forward reformation
and innovation to improve intermediary service; (iii) strengthening self-management and supervision and promoting the
improvement of industrial quality; (iv) placing stronger supervision and management and improving the comprehensive
administrative efficiency; (v) focusing more on organizational construction and industrial self-control; and (vi)
consummating information disclosure system and making better use of social supervision.
On September 29, 2016, CIRC circulated
the Notice on Issuance of Business License to Insurance Intermediaries. In order to promote the sound and steady development of
insurance intermediary market, CIRC instructed its local counterparts to focus on the followings factors while managing the business
licenses of insurance intermediaries: (i) capital contributions to be self-owned, genuine and legal; (ii) registered capital to
be deposited into an escrow account set up with qualified commercial bank; (iii) to maintain sufficient and valid professional
liability insurance; (iv) reasonable and viable business model; (v) established corporate governance; and (vi) to undergo mandatorily
required risk assessment.
An insurance agency may engage in the following
insurance agency businesses:
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(a)
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selling insurance products on behalf of the insurer principal;
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(b)
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collecting insurance premiums on behalf of the insurer principal; and
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(c)
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conducting loss surveys and handling claims of insurance businesses on behalf of the insurer principal; and other business activities specified by the CIRC.
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The name of an insurance agency must contain
the words “insurance agency” or “insurance sales.” The license of a Chinese insurance agency company is
valid for a period of three years and may be renewed with due application 30 days prior to its expiration. An insurance agency
must report to the CIRC when it (i) changes its registered name or the name of its branches; (ii) changes its registered address
or the operating address of its branches; (iii) the sponsors or major shareholders change their respective name; (iv) changes its
major shareholders; (v) changes its registered capital; (vi) materially changes its equity structure; (vii)changes its organizational
form; (viii) split, merger; (ix) amends its articles of association; or (x) sets up or closes its branches. The senior managers
of an insurance agency including its branches must meet specific qualification requirements set forth in the Agency Provisions.
The appointment of the senior managers of an insurance agency including its branches is subject to review and approval of the CIRC.
Regulation of Insurance Brokerages
The principal regulation governing
insurance brokerages is the Provisions on the Supervision and Administration of Insurance Brokerage Institutions (the
“Brokerage Provisions”) promulgated by the CIRC on September 25, 2009 and effective on October 1, 2009, which
replaced the Provisions on the Administration of Insurance Brokerages issued by the CIRC on December 15, 2004 and effective
on January 1, 2005. According to this Brokerage Provisions, the establishment of an insurance brokerage is subject to the
approval of the CIRC. The term “insurance brokerage” refers to an entity provides brokerages service on the
execution of the insurance contract between the insured and the insurance company based on the interests of the insured and
collects commission as agreed, including the insurance brokerage companies and their branches. The insurance brokerage shall
meet the qualification requirements specified by the CIRC and obtain the license to operate an insurance brokering business
with the approval of the CIRC. Insurance brokering business includes both direct insurance brokering, which refers to
brokering activities on behalf of insurance applicants or the insured in their dealings with the insurance companies, and
reinsurance brokering, which refers to brokering activities on behalf of insurance companies in their dealings with
reinsurance companies. An insurance brokerage may take any of the following forms: (i) a limited liability company; or (ii) a
joint stock limited company. An insurance brokerage company must have a registered capital or capital contribution of at
least RMB10 million ($1,566,661). The registered capital must be paid up in cash. On April 27, 2013, CIRC issued the Decision
on Revising the Brokerage Provisions (the “2013 Brokerage Provisions”), pursuant to which, CIRC has mandated any
insurance brokerage established subsequent to the 2013 Brokerage Provisions to meet a minimum registered capital requirement
of RMB50 million ($8.1 million).On October 19, 2015, CIRC issued the Decision on Revising Eight Regulations including
Provisions on Insurance Companies Setting up Offshore Insurance Organizations, which made certain revisions to the 2013
Agency Provisions (the “2015 Brokerage Provisions”), among which, (i) eliminate the requirement of prior approval
by CIRC to establish an insurance brokerage company; (ii) eliminate the requirement on personnel or senior managers of an
insurance brokerage company to obtain certain relevant qualification certificate; or (iii) eliminate the requirement of prior
approval by CIRC on split, merger or change of organizational form of an insurance brokerage company.
On May 16, 2013, CIRC issued the 2013 Notice,
pursuant to which, professional insurance brokerage established prior to the issuance of the Decision on Revising the Brokerage
Provisions, with registered capital less than RMB50 million ($8.1 million), can operate their existing business within the provinces
where they have the registered office or branch office, but shall not set up any new branches in any province where they do not
have the registered office or any branch office.
On September 17, 2015, CIRC issued Opinions
on Deepening the Reformation of Insurance Intermediary Market (the “Reformation Opinions”), pursuant to which, the
following targets were erected for future reformation of insurance intermediary market: (i) improve management over entry into
and exit from insurance intermediary market and set up a multilayered service system; (ii) encourage and push forward reformation
and innovation and improve intermediary service; (iii) strengthen self-management and supervision and promote the improvement of
industrial quality; (iv) place stronger supervision and management and improve the comprehensive administrative efficiency; (v)
pay more attention to organizational construction and industrial self-control; and (vi) consummate information disclosure system
and make better use of social supervision. The Reformation Opinions will be beneficial to both the improvement of reformation and
development conducted by insurance intermediaries on their own and transformation and upgrading of the insurance intermediary market.
An insurance brokerage may conduct the
following insurance brokering businesses:
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(a)
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making insurance proposals, selecting insurance companies and handling the insurance application procedures for the insurance applicants;
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(b)
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assisting the insured or the beneficiary to claim compensation;
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(c)
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reinsurance brokering business; and
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(d)
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providing consulting services to clients with respect to disaster and damage prevention, risk assessment and risk management; and other business activities specified by the CIRC.
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The name of an insurance brokerage must
contain the words “insurance brokerage.” The license of an insurance brokerage company is valid for three years and
may be renewed with due application 30 days prior to its expiration. An insurance brokerage must report to the CIRC when it (i)
changes its registered name or the name of its branches; (ii) change its registered address or the operating address of its branches;
(iii) the sponsors or the major shareholders change their respective name; (iv) changes its major shareholders; (v) changes its
registered capital; (vi) materially changes its equity structure; (vii)changes its organizational form; (viii) split, merger; (ix)
amends its articles of association; or (x) sets up or closes its branches. The senior managers of an insurance brokerage including
its branches must meet specific qualification requirements set forth in the Brokerage Provisions. Appointment of the senior managers
of an insurance brokerage including its branches is subject to review and approval by the CIRC.
On February 9, 2018, the CIRC issued the
Provisions on the Regulation of Insurance Brokers (the “Provisions”), effective as of May 1, 2018. With a total of
109 articles in eight chapters, the Provisions highlight the improved market access and exit, the effective management of matters
no longer requiring licensing, the promotion of specialized and well-regulated operations, and the increased protection of consumers’
rights and interests. In particular, the Provisions make adjustments to optimize licensing procedures for insurance brokerage and
tighten examination of shareholders of insurance brokerage firms; also, the Provisions set forth explicit requirements in respect
of the source of capital contributed by shareholders, custodian of the registered capital, corporate governance and internal control,
and information system, and standardize the requirements on qualifications of senior executives in brokerage firms.
Regulation of Insurance Salespersons
The principal regulation governing
individual insurance salespersons is the Measures on the Supervision of Insurance Salespersons issued by the CIRC on January
6, 2013 and effective on July 1, 2013, which replaced the Provisions on the Administration of Insurance Salespersons
promulgated on April 6, 2006 and effective on July 1, 2006. Under this regulation, the term “insurance
salesperson” refers to an individual who sells insurance products for an insurance company, including those who are
engaged by insurance companies or by insurance agencies. To engage in insurance sales activities as an insurance salesperson,
a person first must pass the qualification examination for the insurance agency practitioners organized by the CIRC to obtain
a “Qualification Certificate of Insurance Agency Practitioners”. The person must have a junior high school
education or above to be qualified for the examination. In addition to the qualification certificate, a person must be
registered with the CIRC’s Insurance Intermediary Supervision Information System and obtain a “Practice
Certificate of Insurance Salespersons” issued by the insurance company or insurance agency to which he or she belongs
in order to conduct insurance sales activities. On August 3, 2015, CIRC issued the Notice on Relevant Issues to Management of
Insurance Intermediary Practitioners (the “2015 Notice”), pursuant to which, the qualification certificate is no
more a pre-requisite condition for insurance intermediary practitioners to practice, instead, the insurance intermediary
companies where such practitioners work shall complete the practitioners registration for them and conduct professional
training. CIRC branches shall not accept any application for qualification approval of insurance salesperson (including
insurance agency practitioners) any more.
Regulation of Insurance Brokerage Practitioner
and Insurance Adjustment Practitioners
The principal regulation governing insurance
brokerage practitioners and insurance adjustment practitioners is the Measures on the Supervision of Insurance Brokerage Practitioners
and Insurance Adjustment Practitioners issued by the CIRC on January 6, 2013 and effective on July 1, 2013. To engage in the insurance
brokerage activities as an insurance brokerage practitioner, or in the insurance adjustment activities as an insurance adjustment
practitioner, a person first must pass the qualification examination organized by the CIRC for the insurance brokerage practitioners
or for the insurance adjustment practitioners to obtain a “Qualification Certificate of Insurance Brokerage Practitioners”
or a “Qualification Certificate of Insurance Adjustment Practitioners”. The person must have a tertiary education or
above to be qualified for the examination. In addition to the qualification certificate, a person also must be registered with
the CIRC’s Insurance Intermediary Supervision Information System and obtain a “Practice Certificate of Insurance Brokerage
Practitioners” or “Practice Certificate of Insurance Adjustment Practitioners” issued by the insurance brokerage
firm or insurance claims adjusting company to which he or she belongs in order to conduct insurance brokerage or claims adjustment
activities. An insurance brokerage practitioner is not allowed to conduct insurance brokerage activities on behalf of himself or
herself. On August 3, 2015, CIRC issued the 2015 Notice, pursuant to which, the qualification certificate is no more a pre-requisite
condition for insurance intermediary practitioners (including insurance adjustment practitioners) to practice, instead, the insurance
intermediary companies where such practitioners work shall complete the practitioners registration for them and conduct professional
training. CIRC branches shall not accept any application for qualification approval of insurance brokerage practitioners any more.
Content Related to Insurance Industry
in the Legal Documents of China’s Accession to the WTO
According to the Circular of the CIRC
on Distributing the Content Related to Insurance Industry in the Legal Documents of China’s Accession to the WTO, for the
life insurance sector, within three years of China’s accession to the WTO on December 11, 2001, geographical restrictions
were to be lifted, equity joint venture companies allowed to provide health insurance, group insurance, and pension/annuity services
to Chinese citizens and foreign citizens, and no other restrictions allowed except those on the proportion of foreign investment
(no more than 50%) and establishment conditions. For the non-life insurance sector, within three years of China’s accession,
the geographical restrictions were to be lifted and no restrictions allowed other than establishment conditions. For the insurance
brokerage sector, within five years of China’s accession, the establishment of wholly foreign-funded subsidiary companies
was to be allowed, and no restrictions allowed other than establishment conditions and restrictions on business scope.
According to the latest Catalogue of Industries
for Guiding Foreign Investment (2015 Revision) issued by Ministry of Commerce on March 10, 2015 with effective date on April 10,
2015, both the insurance agency and insurance brokerage do not fall into the prohibited or restricted category any more. On January
12, 2017, the State Council issued the Notice on Certain Measures to Strengthen Opening up and Utilization of Foreign Investment,
pursuant to which, restrictions on foreign investors entry into the industry of insurance institutions and insurance intermediaries
within China will be further relaxed. However, as these regulations are still relatively new, local CIRC counterparts may have
different interpretations. Based on the consultation by the Company with the relevant local counterparts of CIRC, they are of the
view that the proportion of foreign investment in insurance intermediaries shall not exceed 24.9%.
PRC Regulations on Foreign Exchange
Foreign Currency Exchange
Foreign exchange regulation in China is
primarily governed by the following rules:
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Foreign Currency Administration Rules (2008 Revision), as amended or revised, or the Exchange Rules; and
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Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), as amended or revised, or the Administration Rules.
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Under the Exchange Rules, the Chinese dollars
or RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related
foreign exchange transactions. Conversion of RMB for capital account items, such as direct investment, loan, security investment
and repatriation of investment, however, is still subject to the approval of the SAFE or relevant authorities.
Under the Administration Rules, foreign-invested
enterprises may only buy, sell or remit foreign currencies at those banks authorized to conduct foreign exchange business after
providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE. Capital
investments by foreign-invested enterprises outside of China are also subject to limitations, which include approvals by the Ministry
of Commerce, the SAFE and the State Development and Reform Commission.
On June 9, 2016, SAFE issued the Notice
on Reforming and Regulating Management Policies of Settlement of Foreign Exchange under Capital Accounts, pursuant to which, the
domestic entity may, depending on its actual operation need, settle its revenue in foreign currency with the bank, provided such
revenue falls into those under capital accounts with explicit policy on settlement by willingness; while for those revenue under
capital accounts still subject to restrictive regulations, such applicable policies shall prevail.
On January 26, 2017, SAFE issued the Notice
on Further Promoting the Reform of Foreign Exchange Management and Strengthening Verification on Authenticity and Legality, pursuant
to which, banks are mandated to strengthen verification on authenticity and legality on foreign exchange conversion and remittance
offshore.
PRC Regulations on Dividend Distribution
The principal regulations governing dividend
distributions of wholly foreign-owned companies include:
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·
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Wholly Foreign-Owned Enterprise Law (2016), as amended or revised; and
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·
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Wholly Foreign-Owned Enterprise Law Implementing Rules (2016 Revision), as amended or revised.
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Under these regulations, wholly foreign-owned
companies in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards.
In addition, these wholly foreign-owned companies are required to set aside at least 10% of their respective accumulated profits
each year, if any, to fund certain reserve funds, until the accumulative amount of such fund reaches 50% of its registered capital.
These reserve funds are not distributable as cash dividends. On March 12, 2019, MOFCOM passed the Foreign Investment Law, which
replaced the three existing laws over foreign investment. From January 1, 2020, foreign individuals, enterprises and other organizations
that directly or indirectly make investment activities in China are subject to the Foreign Investment Law. However, it remains
unclear as to how these changes will affect entities currently operating in China, particularly foreign controlled variable interest
entities.
PRC Regulations on Tax
PRC Enterprise Income Tax (“EIT”)
The PRC EIT is calculated based on
the taxable income determined under the PRC accounting standards and regulations, as well as the EIT law. On March 16, 2007,
the National People’s Congress of China enacted the EIT Law, a new EIT law which became effective on January 1, 2008.
On December 6, 2007, the State Council promulgated the Implementation Rules which also became effective on January 1, 2008.
On December 26, 2007, the State Council issued the Notice on Implementation of Enterprise Income Tax Transition Preferential
Policy under the EIT Law, or the Transition Preferential Policy Circular, which became effective simultaneously with the EIT
Law. The EIT Law imposes a uniform EIT rate of 25% on all domestic enterprises and foreign-invested enterprises unless they
qualify under certain exceptions. Under the EIT Law, as further clarified by the Implementation Rules, the Transition
Preferential Policy Circular and other related regulations, enterprises that were established and already enjoyed
preferential tax treatments before March 16, 2007 will continue to enjoy them in the following manners: (i) in the case of
preferential tax rates, for a five-year period starting from January 1, 2008, during which the tax rate will gradually
increase to 25%; or (ii) in the case of preferential tax exemption or reduction for a specified term, until the expiration of
such term. However, if such an enterprise has not enjoyed the preferential treatments yet because of its failure to make a
profit, its term for preferential treatment will be deemed to start from 2008.
PRC Business Tax and Implementation
of Value-Added Tax “VAT”
Taxpayers providing taxable services in
China were required to pay a business tax at a normal tax rate of 5% of their revenues, unless otherwise provided. According to
the Announcement on the VAT Reform Pilot Program of the Transportation and Selected Modern Service Sectors issued by the State
Tax Bureau in July 2012, the transportation and some selected modern service sectors, including research and development and technical
services, information technology services, cultural creative services, logistics support services, tangible personal property leasing
services, and assurance and consulting service sectors, should pay value-added tax instead of business tax based on a predetermined
timetable (hereinafter referred to as the “VAT Reform”), effective September 1, 2012 for entities in Beijing and October
1, 2012 for entities in Jiangsu. In March 2016, the PRC State Council further expanded the application of VAT to several other
key sectors, including real estate, construction, financial services and lifestyle services, effective May 1, 2016.
As of December 31, 2019, all of our Consolidated
Affiliated Entities have been requested to convert into the VAT system.
Dividend Withholding Tax
Under the PRC tax laws effective prior
to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises are exempt from PRC withholding tax. Pursuant
to the EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and distributed to us by our PRC subsidiaries
are under a 5% withholding tax subject to PRC laws and regulations, provided that we are determined by the relevant PRC tax authorities
to be a “non-resident enterprise” under the EIT Law.