Chinese insurers forced to rein in financing via short-term policies

Chinese insurers are reducing the issuance of short-term duration life insurance policies as the industry authority continues to crack down on the products to curb financial companies that use proceeds collected from policyholders to make aggressive takeover bids.

Hui Ka-yan, chairman of the property conglomerate Evergrande Group had emphasised in an internal meeting that his insurance unit Evergrande Life “should never be used as a financing platform for the group company”, mainland media reported on Tuesday.

Evergrande Life, which funded its parent company China Evergrande Group’s ownership raid on Vanke late last year, reported that its solvency ratio had plummeted to 109.68 per cent in the forth quarter, from 179.73 per cent, close to a regulatory bottom line of 100 per cent.

Hui said Evergrande Life should increase its premium income ratio to above 50 per cent of total income in 2017.

Dayton Wang, an analyst with Guotai Junan International, said the move meant Evergrande Life should “significantly bring down the issuance of short or medium duration insurance products” which may not pass the risk testing standard set by China’s insurance regulator and therefore couldn’t be rated as “premium income”, rather should be considered “deposit by policyholders”.

In the past few years Chinese insurers, particularly the unlisted ones, including Evergrande Life, have been actively promoting insurance policies below five-year duration, while promising annual returns as high as 8 to 9 per cent through bancassurance channels. To attract more clients, these products, called “universal life insurance policies”, have no penalty for early withdrawal.