The China Insurance Regulatory Commission (Circ) latest circular was issued on 28 April warned insurers that it will act against those that violate tighter rules aimed at tackling concerns about financial risk in the world’s second-largest economy.
The watchdog said it will not tolerate “improper conduct” in the following areas:
- fake capital injections into insurance companies;
- improper corporate governance in insurance companies;
- improper use of insurance funds;
- inappropriate product designs including products which allow easy redemption or surrender;
- delayed compensation or complicated compensation procedures;
- improper levying of fees;
- false data.
It was the third such statement released by the regulator in just nine days, after publishing a similar warning first on 20 April, then on 23 April.
Top official sacked
It’s likely Circ is showing its teeth following the recent sacking of its top official Xiang Junbo over charges of financial misconduct in his role as chairman.
Last month, the watchdog said it was looking to tighten its grip on the insurance industry as details of Xiang’s corruption inquiry emerged which also looked into a wave of risky global deals in the sector.
Circ said it has to “reflect deeply on the bitter lessons of the actions of Xiang”, under whom the industry has grown to $2.2trn (€2.07bn, £1.76bn) in assets but has come under fire for its risky investments.
China has sought to energise its long-sleepy insurance industry as part of an effort to modernise its financial system and capitalise on the emergence of middle-class spenders who want financial security
However, Circ has also repeatedly warned insurers against the risks of selling high cash-value short-term universal life insurance products as well as short-term trading, announcing last December that it plans to roll out new rules to reduce the proportion of insurance funds allowed to invest in stocks.
It will also intervene if insurers make frequent share purchases.
This includes selling investment products that were regulated as life insurance but promised high rates of return with maturities as little as 12 months.
These products allowed insurers, particularly smaller insurers, to raise large sums of money quickly, which they then used to speculate in bonds, real estate and other investments.