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.
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