Banking & Finance

Insurers should invest for the long term, avoid speculative punts, Chinese regulator says

CIRC’s chairman Xiang adds his voice to calm aggressive buyouts, after CSRC head lambasted asset traders as “robbers” and “ghouls”

PUBLISHED : Tuesday, 13 December, 2016, 6:51pm
UPDATED : Tuesday, 13 December, 2016, 11:13pm

China’s insurance regulator has urged the country’s insurers to invest for long-term gains, and avoid using their funds for asset trading and deal making.

“Insurers must be a provider of long-term capital, rather than a speculator for the short term,” said the China Insurance Regulatory Commission’s chairman Xiang Junbo, in a speech published on the CIRC’s website after he summoned insurers to a Tuesday meeting in Beijing. “They should be a financial investor with good intentions, rather than a hostile acquirer and controller.”

The regulator will require insurers to maintain the security of their capital as their top priority, with the resolve of “cutting one’s own wrist,” he said.

Insurance companies may invest in fixed-income financial products, with some equities, and should avoid being the proverbial “barbarians at the gates” in funding corporate raiders and hostile takeovers, he said.

Xiang’s remarks mark the first time that the insurance regulator has added his voice, since the country’s securities regulator Liu Shiyu last week lambasted leveraged stock buyers as “robbers,” “barbarians” and “ghouls.”

Insurers, armed with vast amounts of savings and premium capital, are a convenient capital source for funding acquisitions.

On top of the regulator’s priority is the protection of the capital of policy holders, amid concerns that any foul play would spill over to public protests.

The CIRC’s voice may halt the aggressive buying of shares by insurers “in the near term, especially the leveraged buyouts,” said Su Peike, chief researcher at the Public Policy Research Centre at Beijing’s University of International Business & Economics (UIBE).

More regulations are expected, especially regarding the investment strategies of universal life insurers, to close some of the loopholes, Su said.

The CIRC last week banned Evergrande Life, an arm of China Evergrande Group, from buying shares for violating rules. No details were given. The insurer had bought shares in China Vanke.

Evergrande’s acquisitions heightened one of corporate China’s most contentious hostile takeovers.

Earlier this month, the CIRC also barred Foresea Life Insurance Co. -- controlled by another hostile party in the Vanke takeover -- from selling universal insurance. Foresea, controlled by Baoneng Group, had also been accumulating shares in Shenzhen-traded appliance manufacturer Gree Electric Appliances, in addition to its hostile takeover bid of Vanke.

Xiang said on Tuesday that the CIRC will take actions on “quick in, quick out” share trading of insurers, and coordinate with securities and banking regulators, as well as the central bank.

The regulator will improve the corporate governance of insurance companies, and impose much tougher punishment on the parties that violated the regulation, as well as an accountability system on the person in charge, Xiang said.

To be sure, the regulator shouldn’t go all the way to ban all equity investments, the UIBE’s Su said.

“A clear guide is needed to define the financial investment and hostile buyouts,” Su said.