Pressure on Anbang could ripple outwards

TONGYANG Life Insurance

20/06/2017 02:47

(The author is a Reuters Breakingviews columnist. The opinions 
expressed are his own.) 
    By Quentin Webb 
    June 20 (Reuters) - Stress on Anbang Insurance Group could 
have ripple effects. With Chairman Wu Xiaohui detained, the 
acquisitive Chinese insurer's access to funding could be 
reduced, perhaps prompting asset sales. While regulators will 
want to avoid turmoil, Anbang's size and sprawl add to the 
uncertainty. 
    Wu was detained by authorities on June 9, Reuters reported 
on Thursday, citing people familiar with the matter. His 
problems mark an escalation in an official campaign against 
China's insurance sector, which has used high-yielding, 
investment-like products to fund breakneck growth and fuel 
corporate raids. Yao Zhenhua, chairman of rival Foresea Life, 
was banned from the industry for 10 years in February. And in 
April, graft-busters nabbed China Insurance Regulatory 
Commission Chairman Xiang Junbo, making him the most senior 
financial official ensnared in a long-running corruption 
crackdown. 
    Anbang's fate matters because of how deeply it is woven into 
domestic and international financial systems. The unlisted firm 
has shot from obscurity to become an industry heavyweight. Last 
year it accounted for 5.3 percent of all insurance premiums sold 
in the People's Republic, and 19.4 percent of investment-type 
products, according to Jefferies. According to its website, it 
boasts nearly 2 trillion yuan ($294 billion) of assets, making 
it roughly as large as a major European player such as Munich Re 
of Germany. 
    In the process, it has gobbled up assets, presumably in part 
to help generate the yields it has promised to customers. These 
include financial institutions in Western Europe - Dutch insurer 
VIVAT, Belgian counterpart Fidea, and Belgian bank Nagelmackers 
- as well as a majority stake in South Korea's Tongyang Life 
Insurance  082640.KS . It spent nearly $2 billion on the Waldorf 
Astoria in New York and another $6.5 billion on Strategic Hotels 
& Resorts, the hotel group previously owned by Blackstone 
 BX.N . 
    Back home, the company and its subsidiaries have amassed 
slices of Chinese public companies totalling more than $27 
billion, Eikon data shows. Its portfolio is heavy on property 
developers and financials: most notable are large stakes in 
China Minsheng Banking  600016.SS  and China Merchants Bank 
 600036.SS , of 17.8 and 10.7 percent respectively, according to 
the banks' annual reports. But Anbang also has large positions 
in firms specialising in wind power, traditional medicine, and 
department stores. 
 
    BAD PUBLICITY 
    Unlike banks, most insurers do not need constant funding 
from other lenders or capital markets. So they are less prone to 
sudden crises of confidence. But they can still be vulnerable. 
One concern about Anbang and China's other rapidly growing 
private insurers is a mismatch between assets and liabilities - 
long-term assets like hotels or equity positions, funded with 
investment-style insurance products. 
    These are not stable funding sources for two reasons. First, 
savers can typically get money back fast by paying a small 
penalty. Bad news could damage confidence and increase 
redemptions. Second, if policies are banned, or distribution 
channels closed, it will be harder to sell new products. In 
either case, payouts could outstrip inflows from new sales. The 
ultimate recourse could be to sell assets to meet those cash 
needs. 
    Customers will not necessarily withdraw, as long as their 
payments keep coming. Many bought via banks and do not 
necessarily see their policies as Anbang investments. Censorship 
might also curb the spread of bad publicity.  
    However, choking off distribution could prove more serious. 
Reports say banks, Anbang's key sales channel, have in some 
cases stopped selling on its behalf, though the company disputes 
this. 
    Attention has already focused on a potential worst-case 
scenario for China's unlisted insurers. In May, media quoted an 
alarming letter, supposedly from Foresea, warning the CIRC that 
if it could not resume selling products to meet upcoming 
redemptions, social unrest and "systemic risks" could arise. 
However, Foresea would not confirm the letter's authenticity and 
told Reuters whoever was circulating it wanted to create more 
financial risks. 
    Such an outcome looks too pessimistic here. For a start, 
authorities have so far placed fewer restrictions on Anbang's 
business than on Foresea's. If Anbang needs to scale back, it 
might have to shed some of its easier-to-sell assets. It could 
retain offshore businesses, which are separately financed and 
are not held via onshore subsidiaries. There is also an 
industry-backed guarantee fund that China could dip into. 
    Authorities want to curb speculative froth and potentially 
reckless behaviour but also avoid panic and economic pain. With 
similar battles already underway in property and shadow banking, 
they are walking a familiar tightrope. 
 
    On Twitter https://twitter.com/qtwebb 
     
    CONTEXT NEWS 
    - Banks are still distributing Anbang Insurance Group 
products, a spokesman told Reuters on June 15, after Bloomberg, 
citing a person familiar with the matter, reported Chinese 
authorities had asked lenders to suspend some business deals 
with the unlisted insurer. 
    - Employees at several Chinese banks told Reuters they 
stopped selling some Anbang products, in some cases several 
months ago and also because the products had "sold out". 
    - Two days earlier, Anbang said Chairman Wu Xiaohui was 
temporarily unable to fulfil his duties. He was detained by 
authorities on June 9, people familiar with the matter told 
Reuters. The company said it was operating normally in his 
absence. 
    - China Minsheng Banking has lent Anbang $100 million, and 
not 100 billion yuan ($15 billion) as rumoured, Chairman Hong Qi 
told a shareholders' meeting, according to Caixin magazine. A 
spokesman for the bank, which counts Anbang as a major 
shareholder, told Reuters the account was correct.     
    - For previous columns by the author, Reuters customers can 
click on  WEBB/   
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
BREAKINGVIEWS - Anbang drama is coda to China's M&A craze    
 urn:newsml:reuters.com:*:nL3N1JB0G8 
BREAKINGVIEWS - Chinese insurers put too many eggs in one basket 
    urn:newsml:reuters.com:*:nL4N1G12E2 
BREAKINGVIEWS - China regulator has healthy fear of goblin raids 
    urn:newsml:reuters.com:*:nL4N1E113V 
Bloomberg piece    https://www.bloomberg.com/news/articles/2017-06-15/anbang-woes-deepen-as-banks-said-told-to-halt-business-dealings 
Even before Anbang chairman detained, some banks halted its 
products     urn:newsml:reuters.com:*:nL3N1JC31Z 
Minsheng chairman says loans to China's Anbang total only $100 
mln -Caixin     urn:newsml:reuters.com:*:nL3N1JF03G 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Editing by Peter Thal Larsen and Katrina Hamlin) 
 ((quentin.webb@thomsonreuters.com;)(Reuters 
Messaging:)(quentin.webb.thomsonreuters.com@reuters.net)) 
 
Keywords: ANBANG GROUP CHAIRMAN/BREAKINGVIEWS