China’s insurance regulator announced on Friday that it has suspended Evergrande Life, the insurance subsidiary of billionaire property developer Xu Jiayin’s China Evergrande Group from investing in the nation’s stock markets.
In a statement published on the China Insurance Regulatory Commission (CIRC) website the government agency said of Evergrande Life’s investment practices that, “the asset allocation plan is not clear, capital operation is not standardized.
The ban comes after the CIRC early last week told the media that it would send separate inspection teams to review the activities of both Foresea Life and Evergrande Life to ensure legal compliance.
Regulator Homes in on Vanke Raiders
The unusually targetted measure came soon after Evergrande used its recently acquired insurance division to buy up nearly a 15 percent share in rival developer China Vanke, making it the third largest shareholder in the nation’s biggest homebuilder. In 2015 Evergrande was China’s second-largest developer by sales.
The CIRC statement recommended that Evergrande Life undertake “the establishment of a clear asset allocation plan to enhance the ability of asset allocation to prevent investment and operational risks.”
Speaking at a mainland investor forum on December 3rd, Vanke chairman Wang Shi insisted that, despite claims by Evergrande that it is pursuing a stake in its bigger rival purely for monetary gain, Xu Jiayin’s company is not merely a financial investor.
China Pioneers New Levels of Insurance Excitement
The CIRC announcement is the latest in a flurry of regulatory moves seemingly triggered by a fierce battle for control of Vanke, a company which has built a reputation for progressive management as much as for homebuilding.
Little-known Baoneng Group became Vanke’s largest shareholder this year by funding aggressive share purchases through sales of guaranteed return, high-yield insurance products.
On December 1st the CIRC banned Baoneng’s Foresea Life insurance subsidiary from selling such “universal life” insurance products. These policies had been marketed heavily to Chinese consumers desperate for an alternative to the nominal interest offered by traditional bank accounts.
In an online statement announcing the move against Foresea, the CIRC stated, “Your firm should conscientiously improve customer service, strengthen risk monitoring and response to maintain company stability.”
In August the CIRC said that it would begin monitoring the fund-raising activities of insurers more closely, and drafted rules to curb the use of high risk financial products such as “universal insurance” policies.
Evergrande branched out into the insurance business late last year by paying RMB 3.9 billion to acquire a 50 percent stake in loss-making Chongqing-based insurer Great Eastern Life Assurance (China) Co Ltd. The company was since rebranded Evergrande Life.