CIRC set to lose control of insurance rescue fund
Management firm will run 10b yuan scheme
Beijing will soon publish a new rule governing the operation of the 10 billion yuan (HK$11.38 billion) insurance protection fund and is likely to remove the China Insurance Regulatory Commission from managing it.
The State Council recently endorsed the rule clearly spelling out how the rescue fund will be managed, according to a source.
Under the new rule, a management firm would be set up to oversee the fund, replacing the insurance regulator, the source said.
In addition, the fund would be allowed to invest part of its assets in stocks and bonds.
The source did not reveal other details of the rule but said the management firm would be set up before the end of the year.
'It is by all means good news for the nation's insurance industry,' said Orient Securities analyst Wang Xiaogang.
'The protection fund is of vital importance to the sector when some of the insurers become insolvent.'
In 2005, the mainland set up the insurance protection fund under CIRC control to compensate policyholders when an insurer goes bankrupt or faces a financial crisis.
Insurers were required to contribute up to 1 per cent of their policy sales to the fund.
It was estimated to have assets of 10 billion yuan at the end of last year, although official figures are not available.
The fund stepped into controversy in May last year after it paid about 1.6 billion yuan to buy a combined 22.53 per cent stake in New China Life from three shareholders - Zurich Financial Services Group, International Finance Corp and Japan's Meiji Life Insurance.
Analysts said the regulator misused the protection fund because it should be barred from investing in any insurer before it went bankrupt.
The fund bought 270 million shares at 5.99 yuan each, almost twice the average price of 3.07 yuan paid by the three companies when they bought into New China Life between 2001 and 2003, according to Caijing magazine.
It was also the first time the regulator used money from the protection fund to conduct a deal of this kind.
The controversial purchase of the stake followed a scandal involving New China Life former chairman Guan Guoliang, who allegedly embezzled 13 billion yuan from the company.
The case also reportedly involved senior insurance regulators.
Guan also reportedly bypassed the board to help other companies he controlled.
He was arrested by police last year, according to a CIRC statement.
The regulator this year said that it planned to cash out of the New China Life investment but it did not elaborate.
New China Life is the mainland's fourth-largest life insurer with more than a 6 per cent share of the domestic market.
Controversial deal
Use of the protection fund for stake purchase has been questioned
Amount paid by the insurance regulator for a stake in New China Life, in yuan: yuan 1.6b
