How Deal-Hungry Anbang Went From Waldorf to Woe: QuickTake

(Bloomberg) -- When New York’s Waldorf Astoria hotel was sold for $1.95 billion in 2014, it shot the Chinese buyer --- Anbang Insurance Group Co. -- and its chairman Wu Xiaohui to international prominence. That was the first deal in a $13.4 billion acquisition spree that lifted Anbang’s profile while raising questions about its ownership and financing. Those questions only deepened after Wu was detained last year by Chinese authorities investigating the firm’s acquisitions funding, market manipulation by insurers and unspecified “economic crimes.” Now, Wu is being prosecuted and China’s insurance regulator is taking over the company.

1. What is Anbang and how big did it get?

It’s a closely held insurance and investment firm headquartered in Beijing, and a relatively young one at that. Anbang started out in 2004 as an auto, property and casualty insurer and only got into life insurance in 2010. Now, it also operates in banking, asset management and financial leasing, with what it says are assets of about $300 billion and 30,000-plus employees. In its short existence, the company expanded to become at one stage the No. 2 insurer in China in terms of life insurance premiums, according to Bloomberg Intelligence. Anbang had been mulling an initial public offering in Hong Kong before it ran into trouble.

2. Who runs Anbang and who owns it?

Wu, as chairman and chief executive officer, was the undoubted No. 1. Who owns it is less clear. According to a New York Times report, the vast majority of Anbang is collectively owned by relatives of Wu or his wife, Zhuo Ran. A company official disputed that report without providing details. Wu cemented ties with a prominent family when he married the granddaughter of Deng Xiaoping, the former Chinese leader who promoted market-economy reforms, and is said to have close links with political families including that of former premier Zhu Rongji. During Anbang’s takeover splurge, Wu has personally negotiated deals without using traditional investment banks.

3. What happened to Wu?

Eight months after his detention, officials said Feb. 23 Wu was charged with alleged fundraising fraud and embezzlement by Shanghai prosecutors. His trial began March 28. The regulator said Anbang violated insurance rules in fund use and that it will run the company for a year, with private capital injected. “The takeover aims to ensure Anbang Insurance’s normal operations as the company’s violations may seriously threaten its ability to meet its financial obligations,” the regulator said. Anbang will remain private.

4. How did Anbang get so big so fast?

Fueling its growth were insurance policies that are popular with smaller insurers seeking to boost market share, including single-premium, high-yield products, many of which can be redeemed in two years at a profit. (The practice is dubbed “corner overtaking” in China, indicating the strategy can be risky yet effective.) China’s regulator in 2016 imposed caps on sales of such products, warning that they posed financial risks.

5. What are China’s authorities worried about?

Chinese leaders are seeking to clean up and rein in risks in the financial sector, which President Xi Jinping has said is key to economic stability. Among the main concerns with insurance are short-term products that offer high returns but impose low penalties for surrendering policies early. That raises the prospect of investors switching from product to product to chase higher returns, and in doing so requiring insurers to quickly find cash to pay out policies. The concern is that that might prove too much for some businesses with assets that are less liquid, such as overseas properties, or put pressure on the stock holdings that insurers wish to offload quickly.

6. How did Anbang target overseas companies?

China’s state media has likened Wu’s ascent to “the Warren Buffett model” of using insurance income to fund wider ambitions: Anbang said on its website its aim is to become a “comprehensive and globalized financial services group.” Anbang has a few hundred managers searching for overseas investment opportunities and looks at more than 1,000 deals a year, Wu said in March 2017. Those staff have “accumulated enough mileage to travel to the moon twice,” he once quipped.

7. How did it fare?

Anbang paid a record with its Waldorf Astoria purchase and in 2016 agreed to buy Strategic Hotels & Resorts for about $6.5 billion. It also drew attention for disrupting transactions already in place. Deals to buy Starwood Hotels & Resorts Worldwide and Fidelity & Guaranty Life collapsed and its spending spree came to a virtual halt at the end of 2016. The company was once in talks to invest in 666 Fifth Ave. in New York, the marquee holding of Kushner Cos., the family company of President Donald Trump’s son-in-law Jared Kushner.

8. Has Anbang been in trouble before?

Yes. Its life insurance unit was banned in May 2017 from applying for new products for three months, after regulators said they found a product that circumvented rules. Anbang’s plan effectively turned a long-term annuity product into a two-year policy by returning large amounts of premium to policyholders. China’s central bank was said to look into suspected breaches of anti-money laundering rules at the insurer late in 2016.

The Reference Shelf

• Bloomberg Gadfly’s Nisha Gopalan says China’s intervention merits applause.
• Redemptions stabilize after government takeover.
• A QuickTake on China’s bid to quash financial risk.
• A 2016 profile of Anbang Chairman Wu by Bloomberg News.
• A Bloomberg story on Anbang’s punishment by China’s insurance regulator.
• Bloomberg writes about how China’s billionaires cannot rest easy.

To contact the reporter on this story: Grant Clark in Singapore at gclark@bloomberg.net.

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

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