Explosive growth in risky investment products sold by Chinese insurers collapsed in the first half of the year following a state crackdown, data from the insurance regulator showed.
However, analysts have warned that the decline poses serious liquidity risks for the companies that dove headfirst into the industry and some could struggle to pay back investors.
New premium income for investment-linked products in China fell to Rmb327.5bn in the first half of 2017, plummeting about 58 per cent from the same period last year, according to data from the China Insurance Regulatory Commission.
Universal life policies, which are classified as life insurance but function as investment products, became popular among retail investors in 2015, when new premium income ballooned to Rmb736bn ($110bn), nearly doubling on the year before.
Unlisted companies such as Anbang Insurance led sales in the short-duration, high-return products and often used premiums to make longer-term investments, buying up large stakes in listed groups or overseas assets.
Fearing duration mismatches at the companies, the Circ cracked down on the investment-linked products early this year, leading to steep declines in premium growth in the first six months.
For Anbang, whose chairman Wu Xiaohui was detained by authorities in June, premium income for the products has collapsed by nearly 100 per cent. The FT reported in May that the company, once one of China’s most aggressive buyers of overseas assets, had been banned for three months from selling the investment products.
The sudden collapse in premium growth is expected to hurt some companies’ abilities to pay investors the promised returns after two years of rapid expansion in the industry.
“In the short term, there could be some liquidity risks,” said Li Jian, a partner at Autonomous Research in Hong Kong. “There could be some serious implications for some of the unlisted insurers, especially if they can’t sell off assets in time.”
Foresea Life recorded a similarly sharp fall in premium income for the first half of the year. Foresea is a unit of Baoneng Group, a formerly unknown company that grabbed China’s attention in 2016 when it attempted a hostile takeover of China Vanke, the big residential developer.
In February Yao Zhenhua, its chairman, was banned from the insurance industry for 10 years, and in April the company warned in a letter to the regulator that a temporary ban on investment products could lead to defaults and social unrest among its investors.
Nine other unlisted groups have notched declines in investment-linked premium growth of more than 90 per cent.
Many investors have opted to cash out of the investment vehicles just a few years after buying them, said Sally Yim, a senior vice-president at Moody’s in Hong Kong.
“Customers might look to surrender after two or three years — and that would be now,” said Ms Yim, referring to the strong wave of sales that started three years ago. “This could put liquidity pressure on some companies this year.”
Foresea’s letter to regulators warned of Rmb60bn in redemptions in 2017 and that it could fail to make those payouts if it could no longer sell new products.
The leadership of Circ was drawn into the spotlight earlier this year when Xiang Junbo, its chairman, was put under investigation by China’s corruption watchdog. The rapid expansion of investment products in China’s insurance industry played out under the watch of Mr Xiang.
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