China Insurance Watchdog Vows to Severely Punish Speculators

(Bloomberg) -- The chairman of China’s top insurance regulator vowed to impose “stringent” rules and “severely” punish short-term speculation by insurers, the latest sign of tightening controls on the nation’s industry.

The watchdog will also curb “aggressive” pricing and the “unreasonably” high returns of some insurance products, Xiang Junbo, Chairman of the China Insurance Regulatory Commission, told reporters in Beijing on Wednesday. Insurers shouldn’t attempt to interfere in the management of listed companies, Xiang said.

The CIRC “will never allow insurance to become a rich man’s club, let alone allow financial crocodiles to use insurance as their channel or hideout,” Xiang said. Any insurer that “challenges the regulatory bottom line, tarnishes the industry’s image or harms the people’s interest” will be driven out of the market, he said.

The regulator since last year has tightened curbs on investment-type policies and restricted insurers’ acquisitions of listed companies, seeking to rein in systemic risk. Rapid sales of such products, typically short-term, in recent years have heightened liquidity risks, and some smaller insurers used the proceeds to embark on a buying binge in the stock market, embroiling developer China Vanke Co. in a tussle for control.

Foresea Suspended

The regulator in December suspended Foresea Life Insurance Co., which was involved in the fight at China Vanke, from selling new universal-life policies and froze new stock purchases by Evergrande Life Insurance Co., after the nation’s top securities official slammed leveraged stock acquirers as “robbers.” The watchdog then released a draft rule that would cap a single shareholder’s ownership in an insurance company at 33 percent, down from 51 percent currently.

In January, the CIRC issued new rules banning insurers from jointly acquiring listed companies with investors from other industries. When acquiring control of public companies, insurers also need to seek regulatory pre-approval, use their own money, and limit targets to the financial industry or insurance-related businesses with stable cash-flow expectations, according to the new rules.

Even as it clamps down on risky industry practices, China is considering easing limits on foreign ownership in life insurers, people familiar with the matter said earlier this week. The government may raise the long-standing 50 percent ceiling on an overseas life insurer’s stake in their local joint venture or let them wholly own a local unit, the people said, declining to be named as the discussions are not public. No final decision has been made, they said.

To contact Bloomberg News staff for this story: Zhang Dingmin in Beijing at dzhang14@bloomberg.net.

To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Russell Ward

With assistance from Zhang Dingmin