Caixin
Apr 27, 2017 10:47 PM
FINANCE

Anbang Subsidiaries Report Big Net Cash Outflows

(Beijing) – The life insurance and property insurance subsidiaries of Anbang Insurance Group, the Chinese owner of New York's Waldorf Astoria hotel, reported a net cash outflow of 5.7 billion yuan ($830 million) and 19.1 billion yuan respectively in the first quarter of this year, according to corporate financial statements released Thursday. 

Insurance industry analysts said that the net cash outflow indicates the companies paid more to clients who claimed back or canceled their policies than the income the companies could earn from insurance premiums. 

For each quarter in 2016, Anbang Life Insurance Co. Ltd., reported in its financial statements a net cash inflow of 2.7 billion yuan, 10.8 billion yuan, 438 million yuan, and 26 billion yuan, respectively. Meanwhile, Anbang Property and Casualty Insurance Co. Ltd., reported a net cash inflow of 89 billion yuan in the fourth quarter last year, after suffering a net cash outflow of 20 billion yuan, 105 million yuan and 1.3 billion yuan for the first three quarters, respectively. 

Both insurers did not disclose any explanation for the net cash outflows in the first three months this year, but analysts suggested that it might be related to tightened oversight over so-called "universal life insurance," a type of policy that combines a death benefit with a high-return investment, offers annual returns of 4% to 8% on average, usually higher than wealth management products offered by banks and fund managers. 

Sales of the universal life insurance have grown fast over the past few years, a boom driven by smaller and newly established insurers eager to grab larger market share and boost their premium income. The aggressive sale of such policies generated significant funds for insurers and empowered them to make a range of investment overseas. But analysts said the practice can create huge uncertainty in terms of cash flow and liquidity management for the insurer.

Anbang Insurance went on an overseas investment spree that included the purchase of the Waldorf Astoria New York in 2014. It also headed a consortium that made an abortive attempt last year to buy Starwood Hotels for $14 billion. Last month, Anbang and the family of Jared Kushner, U.S. President Donald Trump’s son-in-law and senior adviser, abandoned a multibillion-dollar financing plan over a troubled tower at 666 Fifth Avenue in Manhattan.

In September, the China Insurance Regulatory Commission (CIRC) decided to rein in this booming market, proposing to tighten rules on guaranteed returns and early redemption penalties.

The statements released on Thursday also revealed that Anbang Life’s core solvency adequacy ratio—an insurer’s core capital to its minimum capital required by regulators to absorb risks, which reflects the company’s capability to meet its liability obligations, dropped to 101.25% in the first quarter in 2017 from 117.65% in the last quarter in 2017. The ratio of Anbang Property fell to 362.48% from 379.23% during the same periods.

Contact reporter Dong Tongjian(tongjiandong@caixin.com)


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