BOFIT Viikkokatsaus / BOFIT Weekly Review 2018/09
The China Insurance Regulatory Commission (CIRC) announced last Friday (Feb. 23) it had seized private insurer Anbang to prevent its collapse into insolvency, protect clients from losing coverage and shield investors from loss. Anbang's founder and key shareholder Wu Xiaohui, who was arrested last June for improprieties, now faces formal charges for financial crimes. Officials said their stabilisation plan for the next 1–2 years would require recapitalisation of the firm and bringing in new partners. CIRC has also expressed concerns about abuses by other insurers.
In terms of total assets (USD 310 billion), Anbang ranks 139th on the Global Fortune 500. The company, which aggressively expanded its operations this decade domestically and internationally, strayed into businesses unrelated to insurance such as financing, real estate and hotels. The aggressive expansion model was built on novel insurance products and financing from the shadow banking sector. Regulatory changes and tighter enforcement aimed at the insurance and shadow banking nexus, however, squeezed Anbang's revenue. Chinese officials have also been tracking the company's foreign investments. With the company struggling with solvency problems, it has begun to sell off assets.
The Anbang seizure captures in microcosm the risks facing China's financial system, where many firms have funded their expansions with debt. Besides Anbang, firms such as Fosun, HNA, Wanda and CEFC have got a lot of publicity during the last twelve months due to their possible debt and business model problems.