Yao, chairman of Foresea Life Insurance, has been removed from the position after the insurer was found “fabricating information” and “misusing insurance funds,” the China Insurance Regulatory Commission said Friday.
In a statement on its website, the insurance watchdog said that Foresea lied about the source of income for a fund raising in November, 2015. The insurer was also accused of “misusing insurance funds,” which included violating rules by investing more than 30% of its assets in the stock market and acquiring equity investment funds whose managers failed to meet the regulator’s requirement.
Attempts to contact Yao went unanswered and Foresea declined to comment.
The company was fined 800,000 yuan ($116,400), while six senior executives, who the insurance regulator said were “directly responsible” for the misuse of funds, were fined another 560,000 yuan in total. Caixin has learned that Yao and four of the six senior executives had pleaded for leniency but the request was turned down.
This is the harshest punishment yet handed down to an insurer and its leader, said a person inside the insurance regulator who spoke on the condition of anonymity.
It comes at a time when the regulator has signaled a tough stance against companies making highly leveraged takeovers. In December, head of the China Securities Regulatory Commission, Liu Shiyu, called such firms “barbarians” and “robber barons” in a rare outburst.
Yao, who just celebrated his 47th birthday 10 days ago, was little known in China until Baoneng Group, a financial conglomerate chaired by Yao, started to stealthily accumulate shares in Vanke, one of the country’s largest homebuilders, in mid-2015. The open market transactions allowed Baoneng to become Vanke’s largest shareholder within months.
This hostile takeover bid sparked widespread controversy, prompting state regulators to intervene. Although Baoneng signaled in January that it would not seek control of Vanke and only remain a financial investor, regulators were concerned about how the tens of billions of yuan used for the deal were raised.
It was later revealed that much of the funding for Baoneng’s purchase of Vanke’s shares came from so-called universal life insurance policies — insurance that provides low coverage but with investment returns. Such polices offer returns of 4% to 8% on average, usually higher than wealth management products offered by banks and fund managers. While the high-yield polices have attracted investors and helped Foresea raise funds quickly, the practice creates a huge amount of uncertainty in terms of cash flow and liquidity management for the insurer.
In December, the CIRC suspended Foresea from selling these investment-linked policies. The regulator also deployed a team of regulators to inspect nine insurers selling universal policies, including Foresea. The investigation looked into the companies’ corporate governance practices, financial status, compliance with insurance laws and the use of capital.
Only two days before punishments for Foresea and Yao were announced, Xiang Junbo, CIRC’s chairman, vowed to impose “stringent” rules and “severely” punish short-term speculation by insurers.
By Yang Qiaoling and Chen Na