Chinese Regulator Concerned Over Aggressive Insurers’ Stock Market Speculation

China’s insurance regulator voiced concerns over Chinese insurers’ aggressive moves in the country’s stock market, signaling that stricter control measures might be in the works.

Insurance companies are risk managers, not risk creators, said Xiang Junbo, the chairman of China Insurance Regulatory Commission (CIRC), during an annual insurance development conference yesterday.

Xiang warned that the CIRC will punish insurers that use their platforms as financing tools for stock market speculation.

A regional insurer, Qian Hai Life Insurance Co., Ltd., has been locked in a prolonged battle trying to wrestle control of China’s largest residential property developer Vanke away from management since last year.

Chinese insurance companies often use universal life insurance products, a type of flexible permanent life insurance, as vehicles for holding shares of public companies including banks, property developers, manufacturers and financial leasing firms.

Among nearly 3,000 publicly listed companies in the Chinese A-share market, 130 have one or more such universal life insurance products among their top ten largest shareholders, excluding non-tradable shares.

These insurance products hold an aggregate of RMB113 billion (US$17 billion) in market capitalization, compared to around US$6 trillion total A-share market capitalization, according to Chinese media reports.

Huaxia Life Insurance and Sino Life Insurance are the most aggressive. A universal life insurance product issued by Huaxia Life Insurance owns 640 million shares of Ping An Insurance with a total market capitalization of RMB21.4 billion.

Chinese insurers are also very aggressive in their asset allocation when compared to their peers.

Stocks take around 2.3%, 6.7% and 7.5% of insurers’ total investment portfolio in the U.S., Japan and Taiwan, respectively, in 2014. Chinese insurers’ ratio is much higher, say media reports without specifying the exact amount.

American and Japanese insurers respectively allocate 82.4% and 68.3% to fixed income, while Chinese insurers had around 46.9% in bonds in 2014.

The CIRC is concerned about potential liquidity risks from loose risk controls at some insurers. Insurance companies’ high profile battle to take control of Vanke also adds uncertainty to an already volatile stock market.

China Expert network