Chinese Regulator Takes Control of Anbang Insurance Group
China’s insurance regulator, the China Insurance Regulatory Commission (CIRC), in February 2018 “temporarily” took over Anbang Insurance Group. Its chairman Wu Xiaohui in June 2017 was detained by authorities and is now facing prosecution on charges including fundraising fraud and embezzlement.
Anbang’s growth was driven by high-yield, investment-type insurance products, many of which allowed redemption after as little as two years with little or no penalties. The growth helped fund several high-profile acquisitions around the world, including long-term real estate investments. Early redemption options heightened liquidity risks and must have resulted in a duration mismatch between assets and liabilities.
Meanwhile, China had vowed to make controlling financial risks their priority. The CIRC says it will introduce private capital to restructure Anbang, which will remain closely held, according to regulators. However, the government may transfer “all or parts” of Anbang’s policies to other insurers.
The takeover decision was made pursuant to Article 144 of the Insurance Law, which states that the CIRC has the right to take over an insurance company when it faces severe insolvency problems, or “damages public goods by breaking laws”. Anbang’s takeover period will last until February 22, 2019.
A Quick Rise From Nowhere …
Anbang was founded in 2004 as a motor insurance company and now has 1.97 trillion yuan (US$311 billion) in assets and 0.164 trillion yuan in total debt. It holds a 5.3 per cent share of the Chinese insurance market (2016, by premiums) and a 19.4% share when considering investment products only. Anbang is a domestic-only insurer active in all lines: P/C, health, life, group pensions, and reinsurance. Its international arm Anbang International owns prestigious Belgian private bank Nagelmackers, Belgian insurance broker Fidea, and Dutch insurance group Vivat operating under the brand names Zwitserleven PPI and Proteq Levensverzekeringen.
Anbang China is not a member of any multinational pooling network. Furthermore, it is not very likely to be involved in employee benefits captive arrangements as it focuses on the individual market as far as life and health coverages are concerned.
Anbang’s subsidiary Vivat is the network partner of the Swiss Life pooling network in the Netherlands and may be sold by Anbang in an effort to raise cash. However, there are no obvious immediate or future consequences for Swiss Life multinational pooling clients.
… And a Quick Fall Into Oblivion
The demise of Anbang proves -once more- that promising high returns which requires long-term investments whilst letting investors leave at any time is a recipe for disaster.