CHINA MULLS EASING RULES
Shake-up may see smaller insurers come under tighter scrutiny by regulator
CHINA’S insurance regulator is considering an industry shake-up that could see the biggest and most solvent firms resuming an overseas expansion, while smaller, riskier insurers would come under tighter scrutiny.
The plan being discussed would see the China Insurance Regulatory Commission (CIRC) move from a one-size-fits-all regulatory framework to a regime calibrated to insurers’ assets, solvency ratios and risk tolerance, said four people with knowledge of the talks.
It forms part of a broader push by the CIRC to clean up the world’s second-largest insurance sector amid concern that rampant expansion by many smaller firms has caused rising systemic risk in the financial sector.
Chinese insurers have snapped up billions of dollars worth of assets overseas and at home in the past two years to counter falling investment yields at home.
Many have funded their expansion with cash from selling opaque investment-linked wealth management products, increasing companies’ balance sheet risk.
Outbound merger and acquisition (M&A) deal volumes by Chinese insurers doubled last year to US$11 billion (RM49 billion), after growing at a similar pace in 2015, Thomson Reuters data shows.
But concern over the balance sheet risk, and a crackdown on capital outflows, has made it tougher for insurers to win government approval to deploy fresh capital abroad over the past six months, causing uncertainty about their ability to do more outbound deals.
Several larger insurers have lobbied the regulator to take a more tailored approach when applying the rules, arguing they should not be subject to the same investment restrictions as their smaller, riskier rivals, two of the sources said.
Ongoing M&A deals with potential Chinese bidders include Australia and New Zealand Banking Group’s sale of its more than US$3 billion life insurance and wealth business, investment bankers say, and Chinese insurers have also shown interest in buying Hong Kong Life Insurance Ltd, one of few independent life insurers in the financial centre, which could fetch US$600 million.
Chinese insurers have also been looking to buy hotels and other real estate assets from New York to London to find steady and higher yields.
Under the new regime being discussed, the CIRC plans to look more favourably on large, solvent insurers including China Life Insurance Co Ltd and Ping An Insurance Group Co and support their expansion plans, both at home and abroad, said sources.
Smaller insurers will face tougher scrutiny when trying to expand overseas or domestically.
“The insurance companies have to increase their investment yields, and there are some that are considering using assets to do offshore M&As,” said Martin Tam, an insurance partner at law firm Baker McKenzie here.
The proposal is in its early stages and it’s not clear when it might be implemented, said the sources.