Anbang Insurance In Hot Soup

Anbang Insurance Group, whose chairman has been detained by the police, has seen its growth come to a screeching halt as Chinese investors who helped fund its meteoric rise prove skittish about a politically connected company that is no longer in Beijing’s good graces.

Anbang’s sales of life insurance policies and investment products, an important source of cash, stopped almost completely in April after tumbling sharply in March, according to Chinese government data released on Thursday. Across the insurance industry, sales slowed in April compared with earlier in the year.

The weakness follows the government’s crackdown on a sector that is supposed to help families and companies cut their financial risks, but has recently become a hub for rampant financial speculation.

China’s anti-corruption officials announced in April that they were investigating the industry’s top regulator, removed from his post. After that, regulators stepped up their enforcement.

Anbang has been the archetype of the industry’s changing favor.

For years, Anbang used its revenue to fund splashy global takeovers, most famously its 2015 purchase of New York’s landmark Waldorf Astoria hotel. But its strategy tested the country’s political and financial limits, amplifying scrutiny of the company.

Anbang’s rise had been “just another example of the Wild West capitalism in Chinese finance, where people can go off and do whatever, no matter what their sectors are supposed to be doing,” said David Zweig, the director of the Center on China’s Transnational Relations at the Hong Kong University of Science and Technology. “It starts out by providing a needed service in the economy, but these guys end up just going out of control.”

Anbang is now under acute pressure. Its revenue from existing life insurance policies and certain wealth management products was down 88 percent in April compared with the same month the previous year. The rest of the industry was up 4.5 percent in the same period.

The company’s troubles reached a crescendo after Anbang’s chairman, Wu Xiaohui, was detained. Wu has not publicly been charged with any wrongdoing nor is it clear why he was detained. The company has said repeatedly this week that other executives are filling in for Mr. Wu during his absence and that the business is still running.

Yet Anbang also has a big cushion to help sustain the company through tough times.

From January through March of this year, Anbang raised three-fifths as much money as it raised all of last year, government data shows. It has maintained a large stockpile of cash after a series of big investments fell apart, including a $14 billion bid for Starwood Hotels and Resorts and a deal for a Manhattan office tower with Kushner Companies, the family real estate firm partly owned by Jared Kushner, the son-in-law of President Trump and an administration adviser.

But Anbang’s latest figures are eye-catching for the opposite reason. Including new kinds of policies and wealth management products, it took in only $218 million in April this year, down from $5.92 billion in the same month last year, the government data on Thursday showed.

Earlier investors are also getting nervous now. “If the government doesn’t save us, the impact will be no less than the U.S. financial crisis, and those enterprises driven by debt will be involved,” wrote one investor on Chinese social media. “Now, we are betting whether the government will help Anbang or not.”

Investors’ worries — a major source of Anbang’s troubles — center on wealth management products, a potentially explosive risk in the country’s financial system.

Wealth management products offered much higher rates of return than bank deposits, with many providing guarantees. Investors have plowed trillions of dollars into the products, providing companies like Anbang with a ready source of cash for deals.

But companies rarely disclose how that money is invested, raising concerns about what could happen to the financial system if they sour. Fearing a source of instability among the masses, Beijing has moved to limit growth in the products.

In early May, Chinese insurance regulators ordered Anbang to stop selling two investment products. One, they said, was improperly marketed as long-term insurance while a crucial application for the other lacked an actuary’s signature.

By that point, Anbang was already in trouble. Questions about Anbang’s financial strength had begun circulating on social media in China in March and April, as Chinese officials publicly raised questions about sales of wealth management products by some insurers.

If the drop in revenue is steep enough, Anbang could eventually be forced to liquidate some assets. A big factor will be what happens with its existing policies and investment products.

Anbang’s annual report provides little information on the monthly tempo at which its previously issued investments are maturing. The company might need to pay them out if they are not rolled over into further investments with the company. The company’s policies do have very stiff penalties on early redemption to discourage holders from turning them in early for cash.

Anbang could raise money by selling some of its investments, but that could take time.

It has been an active investor in Western hedge funds, in addition to making outright acquisitions of overseas companies. And those terms tend to impose severe limits on Anbang’s ability to ask for its money back quickly.