Since the end of 2017, the China Insurance Regulatory Committee (CIRC) has taken numerous regulatory measures to address disorder in the insurance market, some of which have brought certain domestic life insurers to task.

Use of insurance funds restricted

Notably, the CIRC has tightened the net on the sale of short-term, high-yielding investment products, which it believes "deviates from the fundamental origin of insurance",(1) stressing that the fundamental purpose of insurance is a means of protection from financial loss, rather than a means of investment. In this regard, Article 4 of the forthcoming Measures for the Administration of the Utilisation of Insurance Funds(2) includes an amendment stipulating that insurance funds must be used "for the main purpose of serving the insurance industry" and in a steady, prudent and secure manner that meets the regulatory requirements on solvency.

This represents somewhat of a retrenchment given the CIRC's February 2015 decision to remove the 2.5% cap on guaranteed returns for universal life insurance policies that insurers can offer investors,(3) which:

  • allowed insurers to offer higher-yielding insurance product offerings akin to the wealth management products (WMPs) that have long been a popular investment choice for household investors in China; and
  • gave rise to a new breed of what have been termed 'platform insurers' (ie, insurers which are more similar to holding companies for investments funded by selling insurance products than traditional insurers).(4)

By selling policies that are essentially high-interest WMPs to the public, companies such as Bohai Life, Foresea and Shanghai Life have used the proceeds to purchase assets, properties and holdings in other companies domestically and overseas.(5) These WMPs can be especially appealing to retail investors seeking higher returns than those achievable through bank deposits or the lower yields offered by mainstream groups (eg, China Life, Ping An and China Pacific Insurance Company), without the risk of the stock market.(6) While giving rise to rapid premium growth for these insurers, these products generally carry a higher liability risk than traditional life policies.(7)

The regulators' main concerns are:

  • the ability of these companies to continue paying back such sizable annual returns; and
  • the potential consequences of them failing to meet these liabilities.

Potential liquidity crunch

In addition to the illiquidity of longer-term investments, a mismatch in the ratio of domestic funding sources to overseas acquisitions may pose a substantial currency risk. In China especially, foreign exchange is under the regulators' strict control, despite a rule capping insurers' foreign investment at 15% of their total assets as of the end of the previous year.(8) Despite claims of effective risk management and investment in a balanced mix of short and long-term investments, the CIRC has identified the potential for a liquidity crunch on the back of an increase in redemptions falling due in 2018. Such a high-profile default could affect other financially sound institutions offering WMPs, as it may foster public doubts over the general security of these popular products, which banks and trust companies have long sold domestically. Such a default would also have an impact on the private investors that lent their money.

Given the potential systemic effects posed by an insurer's default under these circumstances, an orderly wind down under the regulators' control may be the preferred option.

New regulations

Besides targeting life insurers with a raft of recent penalties, the CIRC has also issued new regulations aimed at increasing market transparency, requiring insurers to provide information on, among other things:

  • related-party transactions; and
  • their use of insurance funds.

Further, in a recent seminar, a CIRC official referred to insolvent insurers facing bankruptcy, something that has never occurred in the history of the Chinese insurance market.


Facing the challenge of implementing financial regulatory changes, the CIRC's recent measures have garnered attention from across society. The measures are notable, as they underline a renewed emphasis on controlling financial risks, which is of utmost concern for the government.

For further information on this topic please contact Hao Zhan or Sharif Hendry at AnJie Law Firm by telephone (+86 10 8567 5988) or email ( or The AnJie Law Firm website can be accessed at


(1) Further information is available here.

(2) Measures for the Administration of the Utilisation of Insurance Funds, Order 2018/1 of the CIRC, effective April 1 2018.

(3) Further information is available here.

(4) Further information is available here.

(5) Further information is available here.

(6) Further information is available here.

(7) Ibid.

(8) Article 32(1) of the Interim Measures for the Administration of Overseas Investment with Insurance Funds (2007).

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