China draws foreign insurers into illegal HK sales crackdown
Meetings with country's regulator follow tightening of rules by UnionPay on customers using credit cards to buy insurance products
China’s insurance regulator recently visited foreign life insurance firms and intermediaries in Beijing as part of investigations into the illegal sale of insurance products in Hong Kong to mainland Chinese, the official Shanghai Securities News reported on Monday.
The report comes after China’s biggest bank card provider, state-controlled UnionPay, said on Saturday it will tighten regulations on how mainland customers can use its debit and credit cards to purchase Hong Kong insurance products, potentially restricting another gateway for capital flight.
China, which has ramped up its crackdown on illegal outflows of funds this year, is concerned that buying overseas insurance has become a way for Chinese to move money abroad amid concerns over yuan depreciation, volatile stock markets and a slowing economy, avoiding capital restrictions.
The investigation arm of the China Insurance Regulatory Commission (CIRC) found that some insurers were mis-selling insurance products, using underhanded marketing methods, the paper said, without disclosing its sources.
These practices have disrupted the mainland insurance market, the paper reported the CIRC as saying. The paper did not name the foreign companies that the regulator visited or say what it unearthed during the visit.
The UnionPay restrictions sent shares of Hong Kong-listed insurer AIA Group Ltd tumbling as much as 7.2% to a three-and-a-half-month low in Monday morning trading, with analysts saying AIA’s sales could be hit by the move. The shares cut their losses nearer to noon to be down 5.8%.
Brokerage Nomura downgraded its rating on AIA stock to ‘Neutral’ on Monday.
China has seen a pickup in capital outflows amid concerns about a slowing economy and further depreciation in the yuan currency, which has weakened to six-year lows. That has prompted the government to plug some overseas investment channels.
New insurance premiums from mainland Chinese visitors in Hong Kong surged to HK$16.9 billion (US$2.18 billion) in the second quarter this year, more than double the volume for the same period of 2015, Hong Kong government statistics show.
Regulators have uncovered illegal capital outflows of US$8.43 billion so far this year, through underground banks.
Overseas insurance products can serve as a store of wealth and as offshore collateral for other potential investments such as property, analysts and insurance sector insiders say.
On Friday, China’s foreign exchange regulator told banks to strengthen checks on foreign exchange transactions to make sure they were genuine and based on actual needs.