China bans fourth-richest man from insurance sector for 10 years

China’s fourth-richest man has been banned from the country’s insurance industry for 10 years, in the most aggressive move yet by regulators to tame borrowing and hostile corporate takeovers by insurers.

Yao Zhenhua, chairman of financial conglomerate Baoneng Group, last year launched a high-profile raid on China Vanke, the country’s largest residential developer. He acquired a stake worth 25 per cent, prompting Vanke’s chairman to label Baoneng “barbarians”.
Much of the funding for Baoneng’s Vanke stake and other investments came from policies sold by its life insurance unit, Foresea Life Insurance, which r Yao also chairs.
Foresea quickly scaled the premium rankings of China’s life insurance industry by selling so-called “universal insurance” products, which are essentially wealth management vehicles with a small protection component.
Investors flocked to the products, which are mostly distributed through banks, drawn to their high yields and short maturities.
Insurers are able to offer higher yields than those available on comparable vehicles from banks and other fund managers because they have the freedom to invest in a wider range of assets. Anbang Insurance Group has also relied on sales of universal insurance products to fund a high-profile global shopping spree.
But analysts have warned against the strategy. Such products essentially force insurers to seek out risky, high-yielding assets in order to meet future payouts. Analysts are also concerned by a liquidity risk when short-duration products are matched to long-term, illiquid assets such as real estate or large equity stakes.
In banning Yao from the industry for 10 years, the China Insurance Regulatory Commission announced that Foresea had “provided false data” and “used insurance funds against regulations” without providing specifics.
Rarely seen in public, Yao was China’s fourth richest man in 2016 with a fortune of $17bn, up more than nine fold from a year earlier, according to the Hurun Report. Local media say he started as a vegetable seller before making his first fortune as a property developer in the freewheeling city of Shenzhen in the 1990s. Before the latest punishment, the CIRC had already signaled an intention to crack down on such practices. At a press conference on Wednesday, CIRC chairman Xiang Junbo said the agency “will never allow the insurance industry to be turned into a rich boys’ club” or become a “sanctuary of large financial crocodiles”. Xiang previously warned that insurers cannot be “ATM machines” for corporate raiders. Xiang also promised on Wednesday to curb “aggressive” pricing and “unreasonably” high returns on some insurance products. He said insurers should not interfere with the management of listed companies. Instead, the industry should focus on its core function of providing risk protection.
In December, CIRC banned Foresea from selling universal life products stemming from an inspection team’s findings. Evergrande Life Insurance, a unit of property developer China Evergrande Group, was also temporarily banned from buying stock after the securities regulator labelled leverage-fuelled stock purchasers as “robbers”.
Anbang and another insurer, Shenzhen-based Funde Sino Life Insurance, were also subject to inspection. They have not been punished. An Anbang spokesman denied that the CIRC sent inspectors to Anbang last May.

Source:FT