The effect of China's crackdown on life insurers' sales practices has been laid bare by annual data from the country's insurance regulator, which shows that premiums from the policies targeted by authorities halved in 2017.
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Total premium income in the life insurance sector fell 6.06% compared to 2016, the first decline in at least five years, despite a rise in the "gross written premium" category that captures more traditional, protection-oriented business.
The fall comes after the China Insurance Regulatory Commission, or CIRC, pushed the sector to focus on providing protection for customers and away from selling policies that were thinly disguised as insurance but in reality served as wealth management products. These were used to generate funds that were in turn deployed to make a range of acquisitions, from domestic bank stakes to New York hotels.
But as China's government became increasingly concerned about rising leverage and outflows of assets that risked destabilizing the yuan, regulators began issuing public warnings to specific companies as well as new rules governing products and investments. The CIRC then escalated the crackdown in late February by seizing control of Anbang Insurance Group Co. Ltd., saying the once-acquisitive company had engaged in "law-breaking" activities that could damage its ability to pay claims and debt.
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The policies the CIRC has targeted are mostly captured within its "income from policyholders' investment account" category. Premium income from this category and the less significant "unit-linked insurance" segment fell to 636 billion yuan in 2017 from 1.280 trillion yuan in 2016, having trebled between 2014 and 2016.
Explaining the fall in premiums, Wiley Huang, a Hong Kong-based research analyst at Guotai Junan International, pointed in particular to regulatory curbs that came into effect Oct. 1, 2017, which restrict investment-related features in life insurance policy design, including the delay of benefit payments to policyholders. He added that after the first quarter, the negative effect from the rules should be mitigated "to some extent," as insurers tend to sell a larger proportion of products that carry investment features in the first three months of the year, known as the kickoff sales period.
Total premium income for the life sector fell 11.4% year over year in January.
Although the CIRC's tightening of rules primarily impacted sales at unlisted insurers that grew rapidly over the past few years, such as Qian Hai Life Insurance Co. Ltd. and Evergrande Life Insurance Co. Ltd., premium growth at some of the country's largest listed insurers also took a hit.
China Life Insurance Co. Ltd., which had relied on sales of low-margin wealth management-type products, saw total premium income fall 26.3% year over year in the fourth quarter of 2017, despite a rise in the gross written premium category. Meanwhile, Ping An Insurance (Group) Co. of China Ltd. unit Ping An Life Insurance Co. of China Ltd., which sells long-term savings-type policies rather than short-term ones, recorded a 19.9% year-over-year rise in total premium income for the same quarter.
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Anbang Insurance Group's Anbang Life Insurance Co. Ltd., which became the third-largest life insurer by market share on the back of the wealth management-type insurance products targeted by the CIRC, retained its market position in 2017 behind China Life and Ping An Life, despite a 26.5% year-over-year fall in total premium income to 243.03 billion yuan.
Its premium income fluctuated sharply throughout 2017, though, as the company was hit by a temporary ban on new policy sales and the then-chairman of the group, Wu Xiaohui, was detained by Chinese authorities in early June. He was charged with "economic crimes" alongside the CIRC's seizure of control.
As of March 20, US$1 was equivalent to 6.33 Chinese yuan.
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