China's insurance regulator will take control of Anbang Insurance Group Co. Ltd. for up to two years, saying the once-acquisitive private insurer "broke insurance laws" that could harm its solvency.
In the three statements issued by the China Insurance Regulatory Commission, or CIRC, Feb. 23, the regulator also said Anbang's former chairman, Wu Xiaohui, is charged with alleged "economic crimes."
Co-founded by Wu in 2004, Anbang has been under Beijing's close scrutiny after a slew of highly leveraged acquisitions overseas and selling high-risk financial products in recent years. It grabbed global attention in October 2014 with a US$1.95 billion purchase of the Waldorf Astoria New York hotel, as well as its abandoned US$14 billion-deal to buy Starwood Hotels & Resorts Worldwide, LLC in 2016 and the US$1.58 billion acquire plan of U.S. insurer Fidelity & Guaranty Life in 2017.
Wu was reportedly taken away by Chinese authorities in June 2017, and then the insurance group said he was "temporarily unable to fulfill his role" due to personal reasons.
In the Feb. 23 statements, the CIRC said it will initially take over Anbang for one year, until Feb. 22, 2019. The goals for the first year will be a stabilized management, improved management of assets as well as capital injection from major strategic shareholders.
But if those goals are not achieved and the company's operation does not return to normal, the takeover period will be extended by another year, the CIRC said. If the insurer continues struggling after two years, the regulator said it will adopt other measures.
During the takeover period, Anbang's shareholder meetings will be suspended, and the boards of directors and of supervisors will stop performing their duties, the regulator added.
He Xiaofeng, head of the CIRC's development and reform department, will lead the takeover team and act as the legal representative of Anbang Insurance Group during the takeover period. The team, which has been formed by the CIRC with People's Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the State Administration of Foreign Exchange, will inspect the group's assets and liabilities, and help authorities look into Anbang's activities that broke laws and other rules. The CIRC added that the takeover team will actively introduce "quality social capital" to take over Anbang's shares and will keep the insurance group privately held.
The CIRC has had an onsite inspection team at Anbang since June 2017.
The CIRC also published a regulatory letter dated Jan. 24, notifying Anbang that it has violated China's insurance laws as well as rules on asset management and real estate investments. The regulator had asked Anbang to change Wu's position in the company by Feb. 23, and appoint successors as soon as possible.
In China, Anbang Insurance Group runs three life insurance subsidiaries and a P&C insurer. The four units had total assets of nearly 3 trillion yuan as of end-2016. In the past several years, the group's major life insurance arms, Anbang Life Insurance Co. Ltd. and Hexie Health Insurance Co. Ltd., used premium generated from short-term high-yield wealth management-type products to fund its aggressive acquisitions both at home and overseas.
As of Feb. 22, US$1 was equivalent to 6.35 Chinese yuan.