Economic review

Regulator bans five Chinese insurers from lending to parent companies

2017-10-12 14:41:00 (Beijing Time)         CGTN


China's insurance industry regulator on Wednesday issued notices to five life insurers banning them from providing cover to their parent companies in the next six months.

The new regulation also requires them to improve internal controls.

It's the latest move to cut off funding for some of the country's most active asset buyers.

The five life insurers - Bohai Life Insurance, Zhujiang Life Insurance, Shanghai Life Insurance, Sunshine Life Insurance and June Life Insurance - were also reprimanded by the China Insurance Regulatory Commission (CIRC) for weak internal controls, based on on-site reviews.

Breaches such as failure to report related-party transactions, untimely disclosures and a compensation system that did not meet regulatory requirements were uncovered.

Bohai Life Insurance, controlled by the ultra-acquisitive Chinese conglomerate HNA Group, is required to stop direct and indirect transactions, including loans and financial aid, with the HNA Group and its units, the CIRC said on its website late Wednesday.

The move marks the latest setback since China began gradually tightening capital outflows in the second half of last year, slowing the hectic pace of deal making by domestic companies looking to scoop up overseas assets ranging from movie studios to football clubs.

The stringent regulatory scrutiny of overseas deals came after Chinese companies spent a record 221 billion US dollars on overseas assets in 2016.

"Beijing is tightening the screws for HNA once more," Brock Silvers, managing director at Kaiyuan Capital in Shanghai, told the newspaper South China Morning Post.

"This mean one avenue HNA used for financing is blocked, which will add difficulty to its financing and ongoing acquisition projects."

The CIRC has been moving aggressively since the start of the year, issuing new regulations and fines against companies to plug loopholes and tighten supervision.

It has also been particularly focused on the widespread issuance of higher yielding, short-term products by some insurers, and the potential systemic risk stemming from their use.

The CIRC's top post has been vacant since April, when former chairman Xiang Junbo was put under investigation for suspected "serious disciplinary violations".