Tighter regulations affect income generation of China's insurance sector

The size of China's insurance sector (total balance sheet assets) grew in the first quarter of this year by 6.5 % y-o-y to just over 17 trillion yuan ($2.7 trillion). The size of China's insurance sector is now nearly eight times larger than it was a decade ago. Insurance premia fell by 16 % y-o-y in the first quarter. The biggest drop was in life insurance, which accounts for over 60 % of all insurance payments. Investment income rose in the first quarter by more than 15 %.

Some insurance companies have strongly bolstered their growth in recent years through the sale of "wealth management products." These universal insurance products differ from traditional insurance by promising investors high and guaranteed rates of return. Companies have been expanding abroad and outside their core business. Last year, however, measures targeting the insurance and shadow banking sectors have tightened the income generation of insurers, especially regarding the wealth management products. Growth has slowed and some insurance companies have been forced to sell their assets. In particular, unlisted firms struggle to pay promised returns to investors. The government has promised better access of foreign entities to Chinese markets, which should even increase the competition. Regulation is also being tightened (see below).

Anbang Insurance provides a telling example of the insurance sector's current problems. Anbang expanded rapidly and was China's third largest insurance company in the first half of 2017. It controlled directly or indirectly nearly 60 firms when encountered with severe financial difficulties and was taken over by government. In April, the government spent 61 billion yuan ($10 billion) re-capitalising Anbang. In May, Anbang founder Wu Xiaohui was convicted of financial crimes and sentenced to 18 years in prison.