Bank-Insurer Partnerships in High-Yield Plans Come to End

(Beijing) — Chinese banks are backing away from short-term, high-yield — and some say extremely risky — insurance policies sold through partnerships with insurers.

The cutoffs began on about Jan. 1 while government regulators were strengthening efforts to curb risks tied to these policies, most of which have been sold to retail investors seeking annual yields of about 5%.

Regulators of the insurance and banking industries say the policies go beyond the insurance industry's mandate to protect consumers and businesses against losses.

The Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), the Bank of Communications and other lenders recently notified clients by text messages that some products, such as universal life and other investment-linked policies, will no longer be available at banks.

Affected are wealth management products that qualify as insurance policies yet provide only limited protection.

Banks and insurers started teaming up several years ago to sell these short-term products to investors who were seeking high returns. But even before banks got involved, many midsize insurers were working to boost sales of universal life policies.

Also playing the game were major insurers such as Anbang Insurance Group, whose recent spurt of overseas investing included the 2014 purchase of the Waldorf Astoria New York, a renowned luxury hotel.

ICBC, CCB and Industrial Bank Co. Ltd. stopped selling one of Anbang's investor-tailored policies last week — one-, two- and three-year property protection policies that boasted an annual return of up to 5.1%, according to client notices obtained by Caixin. China Merchants Bank stopped selling the policies Jan. 2.

Sources at several other banks told Caixin their institutions also planned to stop selling many short- and medium-term insurance policies.

So-called "bancassurance" partnerships between banks and insurers not only let insurers sell policies through commercial lenders and reinvest the premiums, but the practice also helped banks expand client pools and pocket processing charges.

A senior executive at a commercial bank told Caixin sales of up to 400 billion yuan ($57.7 billion) of Anbang insurance policies contributed around 8 billion yuan to his firm's revenues in 2016.

Government pressure for a bancassurance scaleback peaked on Dec. 30, when the China Insurance Regulatory Commission rolled out rules ordering insurers to delay new subsidiary launches for one year if their short-term policy premiums accounted for more than 50% of total premium income in a given quarter.

Meanwhile, a China Banking Regulation Commission official told Caixin that commercial lenders were verbally warned at the end of 2016 about selling products on behalf of other financial institutions.

“Banks are not allowed to sell anything banned by the insurance regulatory body,” said the official, who asked not to be identified.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)