Shake-up may see smaller in­sur­ers come un­der tighter scru­tiny by reg­u­la­tor

New Straits Times - - Business -

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.

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