China Insurance Regulator Buys 23% of New China Life

30 May 2007 • by Natalie Aster

China's insurance regulator said it will buy more than a fifth of New China Life Insurance Co., the nation's fourth-biggest life insurer, after an investigation into the misuse of funds by a former chairman, reported The Bloomberg.

The nation's insurance industry protection fund will acquire 22.53 percent of New China Life by buying shares from Longcin Group Co., Hainan Gelindao Investment Co. and Orient Group Industry Co., the China Insurance Regulatory Commission said in a statement yesterday without disclosing a price.

It is the first time China's insurance industry protection fund has been tapped, according to a report by the Chinese- language Caijing Magazine. China is preparing to let insurers take on greater risk and invest their funds more freely in the stock market to boost returns.

China ``wants to crack down on bad corporate governance practices at Chinese insurers, and having the fund buy into New China Life is a way to do that,'' said Olive Xia, a Shanghai- based analyst at Core Pacific-Yamaichi International.

Yuan Li, spokesman for the China Insurance Regulatory Commission, wasn't immediately available for comment.

China is preparing to lift a ban that limits insurers' direct investment in the stock market to 5 percent of assets, Wu Dingfu, chairman of the China Insurance Regulatory Commission, said on April 12.

The insurance watchdog is also poised to allow insurers to invest in asset-backed securities, derivatives and other financial products this year, said Li at an April 23 press briefing.

The industry protection fund was designed to protect policyholders in the event of an insurer's bankruptcy or serious crisis, according to Caijing. The money paid to the three companies is intended to cover funds misused by former Chairman Guan Guoliang, the magazine said. Guan couldn't be immediately reached for comment.

China will pay 1.6 billion yuan from the nation's 8 billion yuan industry protection fund, Caijing said on May 28, without disclosing where it got the information. Guan is being investigated by authorities for wrongdoing related to investments of almost 13 billion yuan in Beijing real estate projects, the magazine said.

The protection fund will hold the stake, the insurance regulator said in the statement. New China Life, set up in 1996, has three foreign investors: Zurich Financial with 18.9 percent, Meiji Life Insurance Co. with 4.5 percent and International Financial Corp. with 1.5 percent. The rest is held by 12 domestic companies.

New China Life had premiums of 24.2 billion yuan in the first 11 months of last year, or 6.5 percent of the nation's total life market, making it the fourth-biggest life insurer, according to data by the regulator.

The company postponed a $1 billion initial share sale until at least 2009, the South China Morning Post reported in March, citing a shareholder.