Life threatening

22 March 2016 By Rachel Morarjee

Customers have piled into policies that let them cash out early while pocketing high returns. The need to attract punters is forcing insurers to buy riskier assets. Now regulators are reining in the practice. The crackdown should make the industry safer, but also less profitable.

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China’s insurance watchdog is tightening its control over short and mid-term life insurance products, in a bid to curb aggressive insurers using short-term funds to invest in stocks and long-term assets.

The China Insurance Regulatory Commission (CIRC) is reducing the industry total premiums from such products to between 500 billion yuan ($77.3 billion) and 550 billion yuan a year, from 650 billion yuan in 2015, Yuan Xucheng, director of its life insurance supervision department said at a press conference on March 18.

Yuan said that rapid growth of short- and mid-term insurance products has caused concern about risk created by a potential asset-liability mismatch and liquidity conditions.

The lower level would account for less than 20 percent of total premiums for China’s life insurance industry, a reduction from 27 percent in 2015. At present, 57 life insurance companies sell such products, he added.

“Insurance companies shouldn’t sell quasi-wealth management products purely for investment purposes,” said Yuan. “That’s not insurance,” he added.

The new rules, effective from March 21, follow a buying spree by Chinese insurers in equities and real estate after the CIRC loosened restrictions on insurance investment in 2014. In recent months, Chinese insurers have been active in both overseas and domestic markets.

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Yuan said that rapid growth of short- and mid-term insurance products has caused concern about risk created by a potential asset-liability mismatch and liquidity conditions.

“Insurance companies shouldn’t sell quasi-wealth management products purely for investment purposes,” said Yuan. “That’s not insurance,” he added.

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