China Bans Insurers From Jointly Acquiring Listed Companies

  • Insurers’ investment in single stock capped at 5% of assets
  • CIRC adds restrictions on investments with new rules

China’s insurance regulator banned insurers from jointly acquiring listed companies with investors from other industries, stepping up curbs on their investments to rein in risks.

New rules released by the China Insurance Regulatory Commission on Tuesday also require regulatory pre-approvals before insurers move to acquire a listed company, according to a statement on the regulator’s WeChat account. An insurance company’s investment in a single stock can’t exceed 5 percent of the insurer’s total assets as of the end of the previous quarter, according to the statement.

Separately, the CIRC asked some life insurers to offer lower yields on products as they seek to cut risks in the industry, according to a person with knowledge of the matter, who asked not to be named because the moves haven’t been publicly announced. The instructions were given in talks with more than 15 insurers at the end of last year as the watchdog tried to guide the industry through a smooth transition to a healthier product mix, according to the person.

Regulators have been cracking down on risks in the industry to curb the rapid increases in sales of short-term, high-yield products and restrict speculative stock investments driven by such proceeds. CIRC Chairman Xiang Junbo vowed to nip systemic risks “in the bud” at the regulatory body’s annual meeting earlier this month in Beijing.

‘Friendly Investors’

The regulator in December suspended Foresea Life Insurance Co. from selling new universal-life policies and froze new stock purchases by Evergrande Life Insurance Co., after the nation’s top securities official slammed leveraged stock acquirers as “robbers.” The CIRC last month followed the nation’s securities authority in denouncing insurers’ leveraged stock purchases, urging the most aggressive acquirers to act as “friendly investors” instead of “barbarians.”

The CIRC also instructed the companies to refrain from front-loading sales at the start of the year, a long-standing industry practice, and spread sales more evenly across months and quarters, the person said.

Sales of universal-life products, many designed in China in ways similar to fixed-return wealth management products and account for the bulk of some insurers’ revenue, may drop this year after slowing later last year, according to Ping An Securities Co. Many of such products offered yields of about 6 percent or higher, according to Sanford C. Bernstein & Co., compared to the 1.5 percent interest rate on one-year deposits.

— With assistance by Dingmin Zhang

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE