Anbang Insurance Group's headquarters in Beijing, marzo 16, 2016. (Foto AP / Andy Wong)Anbang Insurance Group's headquarters in Beijing, marzo 16, 2016. (Foto AP / Andy Wong)

Beijing’s recent decision to crack down on activities of Chinese insurance companies could push insurers toward riskier asset investments and create a liquidity crunch within the industry.

Industry regulator China Insurance Regulatory Commission (CIRC) announced strict new rules late December, curbing an industry that has been flush with cash. The new rules are choking a main source of funding and growth for insurers by lowering their allowed investments into stocks (a 30 por ciento), and barring insurance companies from using customer deposits to fund large equity purchases.

The regulations come after a period of unprecedented growth for the Chinese insurance industry. De 2012 a 2016, El sector asegurador de China creció 14.3 percent overall and non-life insurance grew 16.5 por ciento en volumen de primas, según los datos de Munich Re. El año pasado, China superó a Japón para convertirse en el segundo mayor mercado asegurador del mundo por primas.

Tradicionalmente, insurers are considered to be bastions of security by holding conservative assets such as government securities and corporate bonds.

Pero no en China. Detectando oportunidad en un entorno de bajos tipos de interés, Chinese insurers have expanded outside of traditional insurance activities. They have been the biggest issuers of wealth management products called universal life policies. Estos productos, que ofrecen altas tasas de interés y son un híbrido entre un enlace y un seguro de vida, have been extremely popular with consumers dissatisfied with bank deposit rates of around 1 por ciento.

Muy bien de dinero, sino que cargar con la promesa de pagar altos rendimientos, Chinese insurance companies poured money into assets not traditionally associated with insurers. Estas empresas tomaron posiciones en las grandes empresas que cotizan en bolsa y chinos hizo con activos en el extranjero, incluyendo las empresas extranjeras y bienes raíces.

Por ejemplo, Evergrande vida-una unidad de promotor inmobiliario de China Evergrande Grupo-vio sus primas aumentan más de 40 doblar en 2016. It used the proceeds to accumulate a significant stake in rival developer China Vanke last year.

Como industria, insurance has been a major driver of Chinese foreign acquisitions. Anbang Life is at the forefront of such purchases. It made headlines in 2015 para la compra de hotel de Nueva York Waldorf-Astoria de casi $2 millones. En 2016, it bought Strategic Hotels & Centros de Blackstone Group para $6.5 millones. Más reciente, Anbang has been in negotiations to purchase U.S. life insurer Fidelity & Guaranty Life for $1.6 millones, a deal which has been put on hold for New York insurance regulatory review. Anbang’s biggest gambit was a failed $14 mil millones de oferta para adquirir Starwood Hoteles & Resorts Worldwide.

Riskier assets—such as equities—accounted for 49 percent of the insurance industry’s assets at the end of November 2016, un 27 percent increase from the end of 2013, according to a report by Moody’s Investors Service.

Como industria, insurance has been a major driver of Chinese foreign acquisitions.

“In particular, the industry’s rising exposure to single-name equity investments is increasing concentration risk, and leaves the insurers’ profitability and capital profiles sensitive to capital market movements,” analyst Kelvin Kwok wrote in the Moody’s note.

Cashflow Problems

Chinese regulators are concerned about the size of stock investments on insurers’ balance sheets. Such stock investments are risky and volatile, and could put depositors’ capital at risk.

CIRC’s fears are not unfounded.

Traditional insurers manage their business by attempting to match projected payouts of liabilities—such as annuities and insurance payouts—with assets whose cash inflows are stable and predictable enough to fund the outflows.

But the explosive growth of universal life policies, and the insurers’ acquisitions of riskier, longer-dated assets, throw this model out of the window. Insurers such as Evergrande Life have marketed universal life policies with very high yields (hasta 8 o 9 por ciento). And to attract even more customers, these products often have no penalty for early withdrawal.

As such, insurers are forced to buy riskier assets to grow their capital enough to fund such high promised returns. But with insurers holding such large stakes in Chinese listed companies, if depositors withdraw their capital en masse, it could suddenly force the insurers to sell their stakes and cause the stock market to plunge.

China Life holds a 44 percent stake in China Guangfa Bank and a 30 percent stake in Sino-Ocean Group. Foresea owns large stakes in Gree Electric Appliances and China Vanke. If they are forced to sell their stakes, the Chinese stock market could see a sudden downturn.

Insurers such as Anbang, which owns several entire foreign companies, has trapped cash and will find it even more difficult to raise money quickly.

This means that to stay liquid, insurers are forced to sell more universal life policies in the short term—with new proceeds used to pay interest on existing policies.

But that source of capital is quickly drying up, and a liquidity crunch could ensue. Anonymous sources told Chinese-based 21st Century Business Herald that is CIRC is preparing to block sales of certain universal life policies entirely. The CIRC temporarily suspended a handful of insurers late December, including Evergrande and Foresea, from selling universal policies over the internet.

Buyers of new policies are finding the returns have lowered. Marketing a 4.7 percent return on a two-year universal product, an Anbang customer service agent in Shanghai told a reporter from the South China Morning Post, “It could be the highest return on the market nowadays. Next time you come, you might not get hold of a product with no fees on early surrender of two years.”

Some insurers have already felt the squeeze. Evergrande Life, according to regulatory filings, reported that its solvency rate dropped from 180 percent to around 110 por ciento al final de 2016.

Solvency rate of 100 percent is the minimum threshold for insurers in China.

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