Regulator in China Takes Aim at Anbang Insurance Group

2017-05-05 19:04:02

 

Regulator in China Takes Aim at Anbang Insurance Group

SHANGHAI — A Chinese regulator announced on Friday that it had taken disciplinary measures against the Anbang Insurance Group, a financial behemoth that has tried to invest tens of billions of dollars overseas, for the improper sale of two investment products.

The moves by the China Insurance Regulatory Commission come against a backdrop of broader worries about the country’s financial system, in addition to ones about the insurance industry.

President Xi Jinping told Politburo members last month that China should place a strong emphasis on financial stability as a pillar of a strong economy, Xinhua, the state-run news agency, reported.

Many foreign economists and investors on Wall Street have expressed misgivings about China’s rapid accumulation of debt, particularly at state-owned enterprises, since the global financial crisis in 2008 and 2009.

Chinese regulators began stepping up their scrutiny of banks several years ago, and they have been discouraging some aggressive lending and money-raising programs. Partly in response to that, real estate developers and others who needed to borrow large amounts of money began turning to insurers, which rapidly expanded their financial activities and raised the money to do so by selling a wide array of often speculative investment products.

The State Council, China’s cabinet, announced separately on Friday the dismissal of the chairman of the insurance regulatory commission, who has been the subject of a corruption investigation. The government has not linked that investigation to Anbang, however.

This week, the insurance regulator said it was barring Anbang from selling two of its investment products.

One, the Anbang Longevity No. 5 Annuity, had been presented to regulators as a long-term investment. But the commission said that it was effectively a two-year investment that should have been subject to more stringent regulations on short- and medium-term investments.

The other banned investment product, Anbang Endowment Insurance, was put on the market without an actuary’s signature, the commission said.

In an uncommonly sweeping warning to the insurer, the regulator concluded its announcement by telling Anbang that it should pay “high attention” to its full range of investment products and “fix the work on product development and management in strict accordance with supervision policies and requirements.”

The investment-product bans and the broad admonition were part of a direct order to the company that was dated on Thursday and posted on the commission’s website on Friday.

Anbang said that it had no immediate comment on the commission’s order. Chinese regulatory decisions typically take effect immediately, particularly if published for the general public to see, and are nearly impossible to appeal.

The State Council announced separately on Friday that Xiang Junbo, the chairman of the China Insurance Regulatory Commission, had been removed from office. No successor was announced.

Mr. Xiang’s dismissal had been widely expected after Chinese anti-corruption investigators announced a month ago that they had investigated him over “severe violations of discipline.” The government did not link that inquiry and his dismissal to Anbang.

Mr. Xiang has not commented publicly about the investigation since it was announced. The targets of anti-corruption inquiries are typically held in custody and are sometimes subjected to harsh interrogation.

Anbang has been a leader among insurers when it comes to using so-called wealth management products, a class of lightly regulated investments that promise higher rates of return than conventional investments, but that also carry higher risks that may or may not be disclosed.

Wealth management products also tend to promise a quick payback period. But the issuing companies are exposed to liquidity risk if investors ask for their money back instead of reinvesting. The liquidity risk is particularly high if the issuer has put its money into long-term projects that cannot be sold quickly to raise cash.

Many small- and medium-size banks are increasingly raising money for loans, bond purchases and other investments by issuing wealth management products, and even some largely unregulated companies have begun issuing wealth management products.

Anbang came to international prominence in January when its chairman, Wu Xiaohui, met with Jared Kushner, President Trump’s son-in-law and close adviser, at the Waldorf Astoria Hotel in New York. The two met to discuss the possible sale to Anbang of a Kushner family stake in the redevelopment of a Manhattan skyscraper, 666 Fifth Avenue. But those talks ended in March as the proposed transaction became increasingly divisive on both sides of the Pacific.

Anbang bought the Waldorf Astoria for nearly $2 billion in 2014, among $16 billion in overseas acquisitions it made over the past few years. The company, started 13 years ago, has assets of almost $275 billion, a growing portion of which comes from the sale of wealth management products instead of insurance policies, according to Caixin, a Chinese investigative magazine.

Caixin accused Anbang last Saturday of having a shareholder structure that “is like a maze,” and it questioned the appropriateness of capital injections from companies linked to Mr. Wu.

Anbang struck back with a letter on Wednesday threatening to sue Caixin for “malicious” and “inaccurate” reporting.

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