Regulator probes insurers’ bond transactions to ward off risks

China’s top insurance regulator is examining insurers’ bonds transactions nationwide, signalling more stringent risks assessment.

PUBLISHED : Thursday, 23 March, 2017, 2:07pm
UPDATED : Thursday, 23 March, 2017, 10:57pm

China’s insurance regulator is putting the bond transactions by the country’s insurers under close scrutiny, signalling a more stringent risk assessment to ward off risk and restrict the use of policy premiums in speculation.

The China Insurance Regulatory Commission (CIRC) has asked insurers and insurance assets management companies to compile and report their bond transactions before March 28, as the watchdog agency aims to “have a full assessment of risks involving insurance companies’ bonds transactions,” according to a regulatory notice seen by the South China Morning Post.

The move does not necessarily mean bond transactions are causing problems, but signals a more stringent regulatory stance by regulator in assessing and curtailing risks amid an increasingly intertwined financial market, where risks can spread from one segment to the other.

“The regulator is showing a tendency for tighter scrutiny as they are increasingly alert to risks,” said Guo Zhenhua, head of the insurance department at Shanghai University of International Business & Economics.

Chinese insurance companies invested 4.5 trillion yuan (US$653 billion) in bonds by the end of February, or 32.6 per cent of the industry’s total capital operations, according to CIRC data.

Official data shows that Chinese insurance premiums grew at their fastest pace since 2008 last year, bolstered by a rapid expansion of life insurance policies.

China also helped shore up the global insurance industry in 2016 as almost half of global insurance premium growth can be contributed to China, according to an Allianz report.

An examination on the details of insurance assets management products is also required and must be handed over to the regulatory before April 7, according to the notice.

The transactions are required to be updated until the end of February, the latest available monthly data.

Shanghai’s insurers are now following the regulator’s instructions in preparing their reports, according to two companies in the city, declining to be identified.

The CIRC has already stepped up scrutiny since last year, raising the bar for major shareholders to control an insurer, and clamping down on the sales of short term universal life insurance that are blamed for mismatch of liabilities and assets.

Insurers were in the limelight last year, when tycoon Yao Zhenhua and his Baoneng group of companies corralled money from high-yielding wealth management products sold through his Foresea Life Insurance Co. unit to fund his hostile takeover attempt on China Vanke Co., then the country’s largest land owner.

In February, Yao was banned from working in the insurance industry for 10 years while Foresea was fined for providing “fake materials” and “violating rules for using insurance capital,” according to the CIRC.