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China regulator warns insurers over risks from stock buying spree

[HONG KONG] China's insurance companies face rising risks from their investments in the country's volatile stock markets, a top regulatory official said on Tuesday, in a warning shot amid a raft of equity deals by insurers seeking higher returns.

In the latest deal, PICC Property and Casualty Co agreed on Monday to buy Deutsche Bank's 20 per cent stake in China's Hua Xia Bank for up to 25.7 billion yuan (S$5.6 billion). "Insurance companies' asset-liability management is facing a number of risks and problems, such as the increase of capital market volatility," Chen Wenhui, vice chairman of the China Insurance Regulatory Commission (CIRC), said at a conference, according to Chinese business publication Caixin.

CIRC was not immediately available for comment.

China's benchmark Shanghai Shenzhen CSI300 index rose 46 per cent from January to June, before tumbling 43 per cent by the end of August and then rebounding 23 per cent by year-end.

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Piling into investments such as stocks that carry short-term risk increases the mismatch insurers face between such assets, and their liabilities - the payout they make over a number of years from the products they sell.

Chinese insurers, led by privately owned Anbang Insurance Group and Ping An Insurance Group, have spent US$12.2 billion buying real estate, bank and other insurance company stakes at home and overseas, making it a record dealmaking year for them, according to Thomson Reuters data.

The CIRC in October removed a cap of 2.5 per cent on the maximum guaranteed return life insurers can offer policyholders, effectively allowing insurers to compete vigorously by offering higher rates.

The high-profile equity deals this year include insurance and property firm Baoneng Group's acquisition of a near 25 per cent stake in China Vanke Co, in what is emerging as a relatively rare battle in China's corporate history.

These investments are part of a broader shift by Chinese insurers away from low-yielding corporate bonds. "Chinese life insurers' credit profiles are more vulnerable to an economic downturn as they move more funds into alternative investments - such as debt investment plans, trust schemes, and wealth-management products," ratings agency Fitch said in a December report.

The insurers' exposure to stocks rose to an average of around 15-20 per cent of total assets at the end of the first half of 2015, compared with 10-15 per cent a year earlier, Fitch said.