Hong Kong-listed Chinese insurers soared after the China Insurance Regulatory Commissionput the brakes on high-return life insurance policies, essentially short-term wealth management products.
Universal life insurance is one such policy, commonly offering 5-6% annual return. Players like Evergrande Life even offer 8%.
And such policies have been funding unlisted insurers to buy mainland China’s A-shares.Qianhai Life Insurance of Baoneng Group has been issuing these “life insurance” policies to fund its purchase of China Vanke‘s (200002.China) shares. Regulators understandably are worried because if China Vanke’s shares plummet, Qianhai would not be able to honor its life insurance policies.
Under the new rule, the maximum guarantee rate of universal life is cut by 0.5 percentage points to 3%, and the total payout has to depend on the actual investment performance from the universal life account. “This reflects the regulator’s concern for excessive competition and potential negative spread. We expect crediting rate of UL to start to show a meaningful decline,” noted CLSA’s Patricia Cheng.
Listed insurers gained today because in the past they were forced to offer similar products to keep their overall market share, even though investment returns in China have been falling.China Life Insurance (2628.Hong Kong) gained 3.8%, China Pacific (2601.Hong Kong) rose 3.8%, Ping An Insurance (2318.Hong Kong) rose 1.7%, China Taiping Insurance (966.Hong Kong) rose 2.9%, and New China Life (1336.Hong Kong) was up 1.7%.
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