Media Reports

New Wealth Management Products Power Anbang and Rivals

time:2016-07-22 source:Financial Times




A boom in high-yield investment products in China has transformed a handful of little-known companies into multibillion-dollar insurance groups, fuelling concern over the risks surrounding a growing reliance on high-cost borrowing.

The most prominent issuer of investment-related insurance policies, Anbang Insurance, took $28.4bn in payments in the first five months of the year, up from $1.7bn in the same period a year ago, according to data from China’s insurance regulator.
Anbang has drawn international attention by using its war chest for an overseas shopping spree, including an unsuccessful $14bn bid for Starwood Hotels & Resorts in March.
Now several hitherto unknown Chinese companies, including Bohai Life Insurance and Shanghai Life Insurance, have also ballooned into billion-dollar players in that market.
The policies are essentially high-yielding wealth management products (WMPs) that carry guaranteed annual returns, often of more than 5 per cent — appealing to retail investors seeking better returns than the much lower interest rates paid on bank deposits.
Growth in payments reaped from these WMPs has helped privately owned Anbang jump from 40th rank in terms of premiums in 2012 to the top spot as of this year. Over an eight-month period in 2014, its registered capital grew fivefold, but the identity of the investors involved has never been revealed.
Anbang said: “Like any insurer, Anbang invests premiums in a balanced mix of short and long duration investments to ensure that liabilities can easily be met when they arise.”
Chinese regulations restrict insurance companies to a maximum 15 per cent of their total assets invested abroad, but aggressive sales of the investment products have given them room on their balance sheets for acquisitions.
“Anbang’s overseas investment is just the tip of the iceberg, and you will see more insurers trying to take advantage so that they can invest 15 per cent of their assets overseas,” said Sam Radwan, co-founder of Enhance International, a consultancy that advises some of China’s biggest insurers.
Bohai Life, which started operations last year, saw the new payments it took in from the WMPs leap to Rmb11.4bn ($1.7bn) in May from Rmb2.9bn in January — growth of nearly 300 per cent, according to regulatory data.
Similarly, Shanghai Life launched investment-related policies in March of last year and by September had taken in some Rmb7.3bn.
Bohai Life is linked through its largest shareholder, Bohai Financial Investment Holdings, to HNA Group, another of China’s most acquisitive conglomerates. HNA has splashed out billions of dollars this year on overseas purchases including $6bn to buy Ingram Micro.
It is not clear whether HNA had access to Bohai Life funds. Neither company could be reached for comment.
Anbang has gone on a spending spree over the past two years that includes the $2bn purchase of the Waldorf Astoria in New York City, and the $6.5bn acquisition of Strategic Hotels & Resorts.
In March, Anbang led a weeks-long bidding war against Marriott International for Starwood’s hotel empire. After increasing the bid to $14bn, Anbang abruptly walked away and has since gone quiet on the M&A front. It gave little explanation, but Chinese media reported that the country’s insurance regulator planned to block the deal, alerted to the risks of reliance on such funding.
The rapid rate of growth in the investment-related products has raised concerns in China among regulators over companies’ ability to continue to pay out such substantial annual returns. “The liability risk is definitely higher than traditional life policies,” said Dayton Wang, an analyst at Guotai Junan International, a brokerage, in Hong Kong.
Anbang said it had “robust risk management framework across product design” that “exceed the standards required by regulatory authorities”

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