Anbang crisis threatens whole financial sector, say analysts

The fallout from the unfolding crisis at Anbang Insurance, whose chairman, the high-profile tycoon Wu Xiaohui, has stepped down amid reports he has been taken away by the authorities, could reverberate through the whole financial sector, analysts said.

Anbang, one of China’s most aggressive overseas investors, said on Wednesday Wu cannot perform his role “for personal reasons”, and has delegated his authority to other executives.

But a source familiar with the matter confirmed earlier reports in a Chinese magazine that he had been “assisting” an investigation into alleged irregularities at the company and has not returned to his office or home since the end of last week.

Analysts are worried his apparent disappearance – which comes amid a wide-ranging government campaign to impose discipline in the financial markets – could lead to a liquidity crunch that infects the wider industry.

The most worrying issue would be an intensivecancellation of [insurance] policies which would severely weigh on Anbang’s cash flow

Guo Zhenhua, Shanghai University of International Business and Economics

Wu’s case could undermine a widely-held public perception of Anbang as one of China’s most resourceful and powerful companies, according to Guo Zhenhua, head of the insurance department at Shanghai University of International Business and Economics.

“The most worrying issue would be an intensive cancellation of [insurance] policies which would severely weigh on Anbang’s cash flow,” he said.

The company has relied heavily on selling high-risk, short-term insurance policies to beef up its war chest for takeover bids through the capital market.

Capital flow into Anbang will inevitably slow down because of Wu’s case and the enhanced scrutiny of regulators, which will make the company’s situation difficult, said Guo.

Anbang Life Insurance, the flagship of Anbang Insurance Group, reported a solvency ratio of 129 by the end of the first quarter, a sharp drop from 290 per cent in the same period of 2016, but still above the 100 per cent regulatory red line. Solvency ratio is a measurement that broadly describes a company’s ability to cover the financial risks it takes.

Anbang has been at the forefront of developing and promoting short-term, high-yield insurance policies, known as universal life insurance and similar to wealth management products, which in turn has fuelled a spending spree by the firm both in China and abroad in the past few years.

Wu himself has become a household name in China based on his reputation for raising huge sums of money in the blink of an eye, his marriage to former leader Deng Xiaoping’s granddaughter, and his powerful connections with regulators and the second generations of China’s former leaders.

Shares of several publicly traded companies part-owned by Anbang Insurance Group fell in Hong Kong and mainland China on Wednesday. Publicly available information shows Anbang holds major stakes (above 5 per cent) in eight firms listed in Shanghai, Shenzhen and Hong Kong.

Anbang-owned stocks decline in Hong Kong, China in sign of strain at country’s biggest asset buyer


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