China Insurance Regulatory Commission has suspended Foresea Life Insurance, a unit of financial conglomerate Baoneng Group, from selling “universal life” products, amid a regulatory crackdown and controversy over insurance company’s aggressive moves in the country’s stock market.
Foresea Life, an insurance company established in 2012 at Shenzhen’s Qianhai free-trade zone, has been aggressively buying up market share of large listed companies including China Vanke Co., Ltd., Gree Electric Appliances and Dong-E-E-Jiao.
It has also been locked in a takeover battle for China Vanke since last July, generating heated debate regarding how insurance companies should fund, conduct and manage its investments in public firms.
Foresea Life, which counts universal life products for 90% of its premium income, sold wealth management products dressed as insurance products, offering investors guaranteed return and higher yields.
It then used the proceeds to partially fund its share purchases and sometimes sought control of high profile public companies.
Liu Shiyu, chairman of the China Securities Regulatory Commission, recently commented that these are “unusual” activities in the stock market.
“(Some companies) use money from murky sources to conduct leveraged buyout. This behavior is barbaric and cannot be condoned,” Liu said during an official meeting.
Other industry analysts argued that there is nothing wrong with insurance companies purchasing undervalued blue chip names as part of their asset allocation.
The suspension came after the Chinese insurance regulator notified Foresea Life in May that it had found problems including misleading marketing tactics, vicious competition, customer accounts and information disclosure at the firm.
After receiving reports that the company had failed to make adequate changes to fix the problems, the state insurance regulator decided to suspend its abilities to issue new products within the next three months.
The regulatory action has led shares in Gree Electric and China Vanke to tumble.
In 2016, China Insurance Regulatory Commission has suspended six insurance companies, including Foresea Life, from selling insurance products online due to similar misconduct in management.