The Chinese insurance regulator's seizure of Anbang Insurance Group Co. Ltd. is a further example of the government's effort to crack down on corruption and rein in its insurance sector, as well as an indicator that the financial muscle of the once-acquisitive company has substantially weakened, according to industry insiders.
The China Insurance Regulatory Commission, or CIRC, said in three statements Feb. 23 that it would take control of Anbang for up to two years, saying the company "broke insurance laws" and in turn damaged its solvency, that is, its ability to pay claims and debt. Anbang's former chairman, Wu Xiaohui, has been charged with alleged "economic crimes," with prosecutors saying he is being accused of fundraising fraud and abusing his position. Wu was reportedly detained by Chinese authorities in mid-2017 before the insurance group said he was "temporarily unable to fulfill his role" for personal reasons.
People walk past the office of Anbang Insurance Group in Beijing. |
Anbang has for several years used cash generated from its insurance business to fund expansion in China and overseas, vacuuming up assets that included Dutch and Belgian financial institutions, stakes in Chinese banks and New York's Waldorf Astoria hotel.
But there had been signs in 2017 that Chinese officials were keen to slow the acquisition train at both Anbang and other previously active Chinese companies, and the Feb. 23 seizure of Anbang is perhaps the most dramatic step in that direction so far. Many of the deals struck by Anbang and others were funded by premium income, much of which came from high-risk financial products sold to the public that are now largely prohibited.
"The government wants insurers to share the country's burden of elderly care and medical care, not to let a small group of people make money and transfer assets [abroad]," said a Beijing-based business executive. "The latter increases potential financial risks."
Anbang Insurance Group's solvency situation has been unclear since its units stopped disclosing their solvency ratios in April 2017. The company told S&P Global Market Intelligence at the time that the CIRC had approved the move, but it offered no explanation as to why the decision had been taken. As of end-March 2017, two of its four major units, Anbang Life Insurance Co. Ltd. and Hexie Health Insurance Co. Ltd., reported comprehensive solvency ratios of 129.20% and 102.01%, close to the regulatory minimum of 100%.
The CIRC takeover can be interpreted to mean that Anbang's solvency has become inadequate, said a Beijing-based lawyer who declined to be named because her firm is working on legal cases involving Anbang.
China's insurance law states that the CIRC can take over an insurer when its solvency is inadequate or the insurer violates the law or is abusing public interest in a way that severely damages its solvency. The CIRC previously said it could also limit an insurer's use of insurance funds if its solvency conditions do not meet regulatory requirements or if there are significant risks in the company's management.
In 2007, the CIRC took control of New China Life Insurance Co. Ltd. after finding that the then-chairman misappropriated 13 billion yuan of company funds. It also seized China United Insurance Holding Co. in 2009 after the company recorded net losses and inadequate solvency ratios.
Under the China Risk Oriented Solvency System, or C-ROSS, riskier investments require higher capital allocations from insurers, noted Guo Zhenhua, head of the insurance department at the Shanghai University of International Business and Economics. This could mean that Anbang was asked to reduce riskier investments, including shares, Guo added.
Founded in 2004 as a property and casualty insurer, Anbang Insurance Group's four Chinese insurance units had total assets of 2.525 trillion yuan at the end of 2016. However, since the government started late in 2016 to crack down on the sale of short-term, high-yield wealth management-type products in the life insurance segment, Anbang's premium income has plunged: Premiums in its units fell 41.6% year over year in the first 11 months of 2017, a stark contrast to the 220% year-over-year growth recorded in 2016.
Anbang Insurance Group owns the Waldorf Astoria hotel in New |
Its recent high-profile overseas deals include the US$1.95 billion acquisition of the Waldorf Astoria in 2014, the purchase of South Korea's TONGYANG Life Insurance Co. Ltd. for about US$1 billion in 2015, and the takeovers of Dutch insurer VIVAT NV, Belgian insurer FIDEA NV and Belgian lender Bank Nagelmackers NV, formerly Delta Lloyd Bank NV.
Domestically, Anbang Property & Casualty Insurance Co. Ltd. is the biggest shareholder of Chengdu Rural Commercial Bank Co. Ltd. and the second-biggest shareholder of China Merchants Bank Co. Ltd. with a 10.72% stake.
Anbang units sold shares in some major Chinese banks in 2017, with an Anbang spokesman saying at the time that the sales were "purely part of normal market operations." However, Dayton Wang, then-vice president of the research department at Huatai Financial Holdings (Hong Kong), told S&P Global Market Intelligence that the sale proceeds would improve Anbang Life's and Hexie Health's solvency ratios by contributing to their recognized asset bases.
Anbang Insurance Group declined to comment beyond the CIRC's statements on the takeover.
As of Feb. 22, US$1 was equivalent to 6.35 Chinese yuan.


