Xiang Junbo, chairman of the China Insurance Regulatory Commission [Photo/Xinhua]

Firms' short-term speculation to be harshly punished

China's insurance regulator vowed on Wednesday to "severely punish" short-term speculation by insurers and their aggressive purchase of listed companies' stakes, a sign of intensified regulation to curb systemic risk in the industry.

The regulator has also moved to contain "aggressive" pricing and the "irrationally high" rate of returns of some insurance policies, according to China Insurance Regulatory Commission Chairman Xiang Junbo.

Xiang said at a news conference that the CIRC will not permit the insurance business to become "the club of the wealthy" and it will "drive out insurers who challenge the regulatory bottom line, damage the industry's image and hurt the public interest".

Insurers' rapid business growth has raised the regulators' hackles, generating concerns over dangerous and often highly leveraged investments using proceeds from sales of short-term and risky insurance products.

Insurers' aggressive acquisitions of listed companies have also resulted in a crisis of corporate governance and a power struggle within the targeted companies.

"It is wrong for insurers to make investment their main business and bet their profits entirely on the investment returns," said Chen Wenhui, vice-chairman of the CIRC.

Hao Yansu, director of the School of Insurance at the Central University of Finance, said that the regulator's statement highlighted its intention to shift the focus of insurers from aggressive investment to their main business, which is providing protection.

"It is very risky for insurers to excessively chase high returns from their investment in a low rate environment while the economy is growing slower," Hao said.

Wang Guojun, an insurance professor at the University of International Business and Economics in Beijing, said tighter regulation of insurers' investment business is a timely move to rein in risks in the industry as the government continues to push financial deleveraging to deflate financial bubbles.

At the end of 2016, the outstanding value of capital managed by insurers reached 13.4 trillion yuan ($1.95 trillion). About 77.5 percent of the capital is allocated in fixed-income assets while 22.5 percent is invested in equities, according to CIRC.

"How to safely invest such a massive amount of capital is a challenge. Tighter regulation is the right move as aggressive and unregulated investment could have disastrous results for the entire industry," Wang said.

In a recent draft rule, the regulator capped the maximum stake a single shareholder can own in an insurer to 33 percent, down from the 51 percent.

Chen, the CIRC vice-chairman, also said the regulator will continue to prudently encourage insurers to carry out overseas investments.