Quick Take: Foresea Life Sees Cash Position Weakened

Foresea Life Insurance Co. Ltd., which was ordered by regulators to stop selling high-risk universal life insurance products since December, said its cash flow weakened in the second quarter.

As at the end of the second quarter, Foresea remained in a negative cash flow position as it earned less than it spent, according to company filings. Its net cash outflow at the end of the second quarter was 25.58 billion yuan ($3.58 billion), up from 12.44 billion yuan at the end of the first quarter.

So far, Foresea is still able to meet its obligations to policyholders. Its comprehensive solvency ratio — the size of its overall capital relative to insurance claims — improved slightly to 123.47% in the second quarter, compared to 121.04% in the first quarter, according to the company’s recent solvency report.

Universal life insurance policies contributed more than 80% of Foresea’s premium income during the first 10 months in 2016, before the company was banned from issuing the high-risk products. China’s insurance regulator was concerned about the growing risks attached to these products, because of the maturity mismatch between the short-term policies and the longer-term investments they fund. The policies are basically wealth management products that combine life insurance protection with an investment that offers a guaranteed return far higher than bank savings rates.

Shenzhen-based Foresea is the insurance arm of property conglomerate Baoneng Group, which made headlines for its failed leveraged buyout of Vanke from 2015 to 2017.

In early March and again in late April, Foresea requested that the China Insurance Regulatory Commission (CIRC) lift the ban, saying that it might run out of cash and be unable to pay policyholders. The CIRC has yet to budge.

Contact reporter Liu Xiao (liuxiao@caixin.com)