Qian Hai Life signals systemic risks in China’s financial sector – Will China insurance market crash?

Chinese insurers breached investment limits and took unnecessary risks, to the detriment of consumers, for profits.


Consumers were only highlighted after a leak from an anonymous email

There was a leak from an anonymous email on the 15th May. Five sealed documents and other two documents showed how Qian Hai Life (Foresea Life) requested regulators for a reprieve from restrictions on selling new insurance products.

China Insurance Regulatory Commission (CIRC) had suspended Qian Hai Life from selling new insurance products on 5th December 2016 for 3 months. This is a punishment to Qian Hai’s aggressive moves into high-risk stock market. To make matters worse, in February, then-Chairman Yao Zhenhua was banned from working in the insurance industry for 10 years. Qian Hai had used insurance premiums to invest in the stock market beyond stipulated limits.

In 1Q 2017, Qian Hai life recorded 70% decline in premium income. To date, CIRC has yet to approve any of Qian Hai Life’s new products.

Qian Hai begged CIRC to restore their business, an act to save themselves?

Qian Hai almost begged CIRC to restore their business, saying that banning new products will cause greater harm to their customers and the insurance industry. It was reported that Qian Hai Life warned the CIRC in its communications about the possibility of a liquidity crunch triggering mass defaults.

In the documents, Qian Hai Life threatened CIRC that the total surrender value of Qian Hai’s insurance products will accumulate to RMB60 billion (US$8.7 billion). If the company is not able to reinstate their right to sell universal life products, there probably will be “mass disturbances” and “systematic and regional risks”. To repay the kindness of CIRC, Qian Hai promised that they will “coordinate with the CIRC and the government’s need to deal with Vanke’s procedures for changing the board of directors”. Qian Hai’s parent company Baoneng, a real estate giant became Vanke’s biggest shareholder, another real estate giant in China, in 2016.

Qian Hai Life recorded a negative cash inflow of RMB12.4 billion (US$1.8 billion) for the quarter, compared with a negative cash inflow of 1 billion yuan the previous quarter — when the ban went into effect, its solvency reports show. The company had recorded positive cash inflows in the first three quarters of 2016.

Qian Hai Life is not the only Chinese life insurer under regulatory scrutiny

Since late 2016, CIRC has penalised Soochow Life Insurance Co. Ltd., Huaxia Life Insurance Co. Ltd., Pramerica Fosun Life Insurance Co. Ltd. and Anbang Life Insurance Co. Ltd. for violating rules on selling wealth management-type products, while Evergrande Life Insurance Co. Ltd. has been punished for investing aggressively in China’s stock markets.

Chinese insurers may now outsource investments to avoid risking breaches

Some insurers may have decided to outsource investments altogether to avoid trouble. China Life Insurance Co. Ltd. agreed to an investment partnership with Manulife Asset Management, the first such tie-up for the Chinese insurer. The partnership is in line with China Life’s strategy to partner with overseas institutions to explore foreign investment opportunities, according to a statement by the company in Chinese.