(Bloomberg) — The revolution in China's insurance industry that helped unleash about $80 billion of acquisitions started with a whimper and ended with a bang.
With little fanfare, China's top insurance official, Xiang Junbo, in 2012 rolled out rules giving insurers greater freedom to pursue higher returns and invest their income in overseas assets. Within a year, insurers had seized on the opportunity to peddle lucrative investment-type products and use the proceeds to fund an unprecedented buying binge spanning the globe.
(Related: China's Insurers Don't Know Their Own Risks)
The most flamboyant among them was Anbang Insurance Group Co., whose 2014 acquisition of New York's Waldorf Astoria hotel catapulted it into the public eye and made it an emblem of the industry's spectacular rise. Not anymore: Anbang's Chairman Wu Xiaohui has been detained for questioning since mid-June, while the policies fueling its growth have been all but banned by regulators. Meanwhile Xiang, the former head of the China Insurance Regulatory Commission, is under investigation for undisclosed violations.
This week, as top Chinese leaders gather for a financial work conference held every five years, Anbang's fate offers insight into how eager officials are trying to do away with an era of unchecked financial innovation and reckless spending and instead promote stability. Against that backdrop, authorities have discussed the possibility of pushing Anbang to sell assets, and a senior disciplinary official is widely seen as a candidate to replace Xiang, people familiar with the matter said.
"Anbang was arguably the first, the most aggressive and the most willing to test the regulator's 'bottom line'," said Christopher Beddor, an associate at Eurasia Group. "If there is a lesson here, it's that China's leadership appears fundamentally uncomfortable with headline-grabbing volatility or perceived disorder of nearly any kind. Xiang's replacement will likely oversee a more conservative CIRC than what we have seen over the past five or six years."
Anbang declined to comment. The CIRC didn't reply to an email seeking comment.
Choking Growth
The five-year period since Xiang's April 2012 speech and the last financial work conference illustrates perhaps better than any other episode the challenges China faces as it seeks to contain risks while adopting a more market-based economy.
In the insurance business, the abrupt regulatory shift threatens to choke off a key growth engine at Anbang and competitors such as Foresea Life Insurance Co. and Evergrande Life Insurance. The potential winners include China Life Insurance Co. and Ping An Insurance (Group) Co., which stuck with old-fashioned protection-type policies and now stand to benefit as regulators favor more traditional offerings.
Anbang's rise in recent years was remarkable even by the standards of a reinvigorated industry that was eager to push the boundaries. One product, launched in the year following the rule changes and called Anbang Longevity Sure Win No. 1, boosted its life insurance premiums almost 40-fold in 2014 by offering yields as high as 5.8%. That helped provide fuel for Anbang's more than $10 billion of overseas acquisitions since 2014 and equally ambitious investing in the domestic stock market.
Rapid Growth
"Innovation" was key in growing a car-insurance startup into a 1.9 trillion yuan ($280 billion) powerhouse in just over a decade, Vice Chairman Yao Dafeng, who's now part of a team running Anbang amid the government probe, said in an interview last year. For Anbang, that included selling products that offered higher returns than most competitors and could be redeemed in as little as one year.
