China’s insurance regulator tightens scrutiny in wake of chief watchdog’s dismissal

The China Insurance Regulatory Commission urges companies to stay away from aggressive investment strategies in latest guidelines

PUBLISHED : Sunday, 23 April, 2017, 6:48pm
UPDATED : Sunday, 23 April, 2017, 10:04pm

China’s insurance regulator has issued guidelines highlighting industry risks for the second time in a week as it continues to ratchet up its scrutiny following the dismissal of Xiang Junbo, the sector’s most senior watchdog.

Insurance companies should “avoid aggressive investment strategies”, and take measures to avoid risks stemming from 10 specific areas including liquidity and capital management, new business development and the external environment, the China Insurance Regulatory Commission (CIRC) said in the latest guidelines, issued on Sunday afternoon.

“Insurance companies should set up a mechanism stressing prudential and steady investment, strengthen management over assets and liabilities, take reasonable risk preference, while avoiding an aggressive investment style,” the document said.

It also highlighted risks associated with making investments in several sectors, include buying stakes in listed and unlisted companies, property, and overseas assets.

CIRC’s former chairman Xiang was removed from his post for serious violation of the Communist Party’s discipline last Monday, becoming the highest-ranking financial regulatory official to be toppled in China’s anti-corruption fight.

The exact nature of Xiang’s misconduct has yet to be revealed by the party’s discipline authority, but his regulatory style – loosening controls around risky investment by insurers and tolerating short-term wealth management-style products – had been controversial.

China takes down insurance regulator, capping a year-long industry shake-out

On Thursday night, CIRC issued a guideline urging insurance regulators at all levels to tighten up supervision and rectify disorder in the insurance market.

“The outstanding problems facing China’s insurance industry include some insurers seeking quick success and instant benefits, while regulators also need improvement to cope with risks generated from new products and reforms,” those guideline stated.

It also urged regulators to strictly supervise information disclosure, penalties and the approvals process for new licences and new business, in order to eradicate weak links in the system.

Xiang had pushed for policy reforms that gave insurers leeway to invest their funds in products that generated higher returns. These included lifting the cap on equity investments to 40 per cent of an insurer’s investable funds, far higher than global norms in which insurers typically allocate 80 per cent to long-term investments like bonds and 10 per cent to equities.