China insurance watchdog bars Evergrande Life from stock investing for one year

The punishment comes a day after the regulator banned tycoon Yao Zhenhua from the insurance sector for 10 years

PUBLISHED : Sunday, 26 February, 2017, 5:42pm
UPDATED : Sunday, 26 February, 2017, 10:57pm

China’s top insurance regulator has punished a second company in just two days for short-term speculation, suspending the insurance arm of leading property developer Evergrande Group from trading in stocks for one year.

The China Insurance Regulatory Commission (CIRC) said on Saturday in a statement on its website that Evergrande Life was being punished due to “its irregular use of insurance funds in stock investing” from January to November last year. In particular, the company’s “short-term speculation” between late September and early November has caused “grave social consequences”.

The watchdog singled out two executives they found to be directly responsible for the wrongdoing - Liu Hao, then-board secretary and deputy general manager of Evergrade Life and Lv Hailong, then-director of stock investing at the life insurer’s Investment Management Centre. It banned them from the insurance sector for five and three years respectively.

In addition, the CIRC lowered the cap on the insurer’s equity investment to 20 per cent of its total assets and ordered the dismissal of two other people it deemed responsible for the wrongdoing.

According to current rules, insurance companies are allowed to invest up to 30 per cent of their total assets in equities.

The action against Evergrande Life came just one day after the regulator banned Yao Zhenhua, chairman of Foresea Life, from the insurance sector for 10 years and ordered he be dismissed from his post as the company had “fabricated and provided fake data” and “used insurance funds against regulations”.

The CIRC also imposed a penalty of 300,000 yuan (US$45,000) on Foresea Life.

Foresea Life is a unit of financial conglomerate Baoneng Group, which last year launched a hostile takeover bid against China Vanke, the country’s largest residential developer. The bid caused Vanke’s chairman Wang Shi to call them “barbarians at the gate”, warning that the takeover could damage Vanke’s corporate value.

The two latest punishments from the CIRC come amid an escalating regulatory crackdown against risky investments by some insurers in listed companies.

On December 3, Liu Shiyu, chairman for China Securities Regulatory Commission (CSRC), lambasted some aggressive acquirers as “barbarians” and “robbers” for their leveraged acquisitions of shares in listed companies, although he didn’t name them.

On the same day, Chen Wenhui, vice chairman for CIRC, echoed Liu’s remarks and slammed some insurance companies for “skirting regulations” and “using insurance funds in short-term stock speculation”.