China’s insurance regulator is to use an industry protection fund for the first time to buy a controlling share of the country’s fourth-largest life assurer, following a scandal involving the company’s former chairman.
The China Insurance Regulatory Commission said it would take a 22.53 per cent stake in New China Life Insurance from three shareholders: Longcin Group, a motorcycle and engine manufacturer, Hainan Gelindao Investment, and Orient Group Industry, a trading conglomerate.
The three companies allegedly borrowed a combined Rmb1.6bn ($209m) from the insurer with illegal authorisation from Guan Guoliang, the company’s former chairman, who was removed from his position last December for allegedly misusing Rmb13bn to speculate in the Beijing property market.
New China’s finances and management are “a mess”, according to analysts. “One big problem for insurance companies in China is they have expanded much faster than they can afford,” according to Michael Chen, insurance analyst at JPMorgan. “The industry is still very immature in China and lots of players are trying to grab market share without considering profitability.”
The insurance protection fund was established inJanuary 2005 and requires insurance companies to contribute roughly 0.5 per cent of their short-term policy premium income. The total scope of the fund is a secret but was estimated at around Rmb8bn at the end of the first quarter.
It was established toprotect the interests ofpolicyholders in the event of bankruptcy or serious crisis at an insurer. The CIRC is in charge of managing the fund and so has effectively become the largest shareholder in one of the largest players in the industry it is supposed to regulate.
The government is rapidly expanding the scope of investments open to insurers, who were previously restricted to low-yielding government bonds and bank deposits but are now being encouraged to transform themselves into full-service financial conglomerates.
They are now allowed to invest in the stock market, companies, real estate and even in overseas bond and equity markets.
Insurers are enjoying double-digit premium growthas the government dis-mantles the last vestiges of communist China’s social safety net.