Regulator suspends insurer’s major policy in leveraging row
Foresea has been suspended from selling its "universal life" policy following its parent Baoneng Group's acquisition of stakes in listed companies
The China Insurance Regulatory Commission has suspended Foresea Life Insurance Co. from selling new life insurance policies and proposing new products, the Caixin news agency reported on Monday night.
The Baoneng Group’s subsidiary has taken stakes in several mainland-listed companies. Liu Shiyu, the chairman of the China Securities Regulatory Commission, labelled insurers’ leveraged buyout activities “barbaric” in a speech delivered on Saturday.
More than 80% of Foresea’s premium income, or 72.1 billion yuan (US$ 9.7 billion), comes from its “universal life” insurance policies, which combine death benefits and an investment element. If it suffers mass terminations of policies, it will be forced to cash in the shares it currently holds in companies such as Gree Electric, a maker of appliances, and the medicine firm Dong-E-E-Jiao, according to Caixin.
The suspension order on Foresea urges it to strengthen risk monitoring and contingency planning.
Meanwhile, an article published by the state new agency Xinhua on Monday night cited Cao Deyan, the executive vice chairman of the Insurance Asset Management Association of China, as saying that if insurers’ were to make long-term investments in the stock market as opposed to short-term trades, investors and the stock market would benefit. However, the article also said that insurers should not leverage on their clients’ money in order to fund parent companies’ acquisition of rivals.