Huaxia Life, a unit of Huaxia Bank, one of the mainland’s biggest lenders, said in a statement that it will rectify the problems as soon as possible, adding that it is an “honest” financial investor and has never been a “barbarian” aiming to take over listed firms in the secondary market.
This was a direct reference to comments made in a speech earlier this month by Liu Shiyu, the mainland’s top securities regulator, when he denounced Chinese insurers as “barbarians”.
He used colourful language to berate insurers and other asset managers who he said used improperly sourced funds such as those from universal life products to undertake highly leveraged, unsolicited buyouts and raise their stakes in blue chip companies.
“The disorderly development of China’s universal life insurance market is reaching an end,” Sun Ting, an analyst at Haitong Securities, said in a recent note, citing the fact that CIRC seems single-minded in its determination to strengthen regulation, restrict insurers’ aggressive share purchase and contain the business scale of universal life insurance.
In the mainland, universal life insurance products - unlike the US market where most of them are long-term - are usually designed as short- to mid-term wealth management tools with high, guaranteed returns. Insurers collect cash quickly by selling such products, some of them using the capital to buy shares in listed firms for a quick return, so as to repay the interest to policy holders.
CIRC has suspended the internet sales channels of six insurers so far. On December 5, Foresea Life Insurance, controlled by China Vanke’s hostile investor Baoneng Group, was also barred from selling life insurance products.
On December 27, CIRC vice-chairman Liang Tao said in Beijing that regulators will not allow the insurance business to become a short-term financing platform for speculators.
Foresea Life’s universal life insurance division, during January to October, was worth 72.1 billion yuan, accounting for 80 per cent of its insurance business, according to Haitong.
The scale of Huaxia’s universal life services was 127 billion yuan during the same period, accounting for 76 per cent of its business, according to Haitong.
In a notice released in September, CIRC said short- or mid-term universal life products should not exceed 50 per cent of an insurer’s business by 2019, and the proportion should be lowered to 40 per cent in 2020 and 30 per cent in 2021.
Earlier this month, chairman Xiang Junbo, in a speech published on the CIRC’s website after he summoned insurers to a meeting in Beijing, said insurance companies must be long-term investors, rather than short-term speculators.
The regulator will require insurers to maintain the security of their capital as their top priority, with the resolve of “cutting one’s own wrist,” he said.
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