Finance

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

It's a warning to China's upstart insurers: no more trophy assets, and no more hostile domestic takeovers.

Beijing has finally sounded the death knell for the mainland's version of universal life products -- short-term, high-yielding investments that include a small insurance component. Anbang Insurance Group Co., Foresea Life Insurance Co. and Evergrande Life Insurance Co. were among the biggest issuers of the offending policies, and expanded rapidly because of them.

Cover Me
Anbang was the second-biggest insurer by sales during the first quarter after state-owned China Life
Source: Bloomberg Intelligence, China Insurance Regulatory Commission
Note: Insurance sales includes universal life policies.

Now, the China Insurance Regulatory Commission has said it will focus on insurers' major stock purchases and investments in real estate, overseas and alternative assets to resolve existing risks and "strictly contain" new ones. The move comes just days after the nation's top insurance body banned Anbang's life unit from applying for new products for three months.

It means insurers will have to focus on quality investments, and crucially, make sure their liabilities match their assets. So Anbang, for example, already a big investor in real estate in New York, will have to stick with assets that are easy to liquidate, unless it manages to ramp up the more traditional premium offerings. One of the two policies it has been barred from selling -- the Anbang Longevity No. 5 Annuity -- was marketed as a long-term product, when in fact it had an effective duration of two years.

With the generous guarantees on these kind of products getting increasingly harder to fulfill, a lot less will be sold, meaning the eye-popping deals they funded could rapidly become a thing of the past.

Unbridled Ambition
Anbang's forays have included a $15 billion bid, since terminated, for Starwood Hotels, and iconic buildings such as 717 Fifth Avenue in New York
Source: Bloomberg
Note: Anbang's bids for Starwood and Fidelity & Guaranty Life were terminated. The Tongyang Life deal is still pending regulatory approval.

The clampdown follows rules passed in January that effectively killed the brief emergence of hostile takeovers fueled by insurance money. Last year, a relatively unknown conglomerate called Baoneng Group leveraged funding from Foresea, which it part-owns, as well as other asset-management plans, to build a stake of more than 25 percent in the country's largest developer, China Vanke Co. That triggered a tussle for control, but Baoneng's ambitions fell apart when Vanke's management found a white knight in state-owned Shenzhen Metro Group Co.

Also included in the January changes: banning insurers from jointly acquiring listed companies with investors from other industries, a guilty practice of Baoneng's. In addition, the CIRC last year placed a 33 percent cap on single shareholdings in an insurance firm; at one stage in the midst of the Vanke takeover, Baoneng held 51 percent of Foresea.

Beijing's assault on universal life products is coming from several sides. China's anti-graft agency last month started a probe of former top official Xiang Junbo, under whose leadership of the CIRC sales of such policies flourished. In February, Yao Zhenhua was removed as chairman of Foresea and banned from the insurance industry for 10 years.

As I have pointed out before, the crackdown on high-risk products will benefit the bigger, largely state-owned insurance firms that have more of a focus on traditional products. The likes of China Life and Ping An will keep buying skyscrapers in London or New York with little problem, so long as the rental yield prospects justify the investment.

But those debt-fueled stock acquisitions and purchases of overseas assets by China's smaller players? They're gone for good.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net