China insurance industry sees growing crackdown following watchdog probe

Julie Zhu

* Xiang most senior financial regulator caught in anti-graft

campaign

* Industry expects further crackdown on products,

acquisitions

* CIRC executives told to "be on guard against risks" -

source

HONG KONG, April 11 (Reuters) - China's anti-graft probe

into the head of the country's insurance watchdog could lead to

more intense regulatory scrutiny on the insurance industry,

executives and analysts say.

A crackdown could put particular focus perceived risks that

have emerged in the sector in recent years, such as

high-yielding investment products and speculative acquisitions

by insurers.

The Central Commission for Discipline Inspection (CCDI) said

on Sunday Xiang Junbo, head of the China Insurance Regulatory

Commission (CIRC) was suspected of "serious disciplinary

violations" - a phrase typically used to refer to graft.

The CCDI and the CIRC did not provide any further details

regarding the investigation into Xiang, who is the most senior

financial regulator to be caught up in Beijing's fight against

corruption.

Analysts and market-watchers said they saw the investigation

as part of a broader push by the government to crack down on

risks in China's financial sector, including excesses that had

grown in the insurance sector under Xiang's watch.

"The on-going anti-corruption campaign...doesn't aim to only

take down a few 'big tigers' but aims to make the Chinese

financial system a clean club," said Hong Hao, chief strategist

at BOCOM International, adding the campaign was ultimately good

for the financial markets and economy.

Financial system risks have been exacerbated by some

insurers taking sizable stakes in market-listed companies often

funded by issuing high-yield, short-term universal life

insurance and other investment products.

"China's insurance industry has been developing too fast and

aggressively since Xiang took office," said one executive at a

major Chinese insurer.

"Going forward, the CIRC would probably tighten regulations

on the industry, in particular on insurers' solvency and their

universal life products. The whole industry is likely to become

more traditional and conservative than before."

One senior executive at another large Chinese insurer said

the CIRC will "definitely tighten its regulations on the

industry," adding it would likely focus on the liquidity risks

created by insurers' asset and liability mismatches.

One senior source, who spoke on the condition of anonymity,

told Reuters that CIRC officials were told at a meeting to

support the government's decision to investigate Xiang, to

"maintain the stability of the industry" and "be on guard

against risks".

This person declined to be identified due to the sensitivity

of the issue. The CIRC said in a statement on Monday it will

tackle illegal activities in the insurance market and fend off

financial risk.

At the time of publication, the regulator had not responded

to a Reuters fax requesting comment.

Since becoming head of the insurance regulator in 2011,

Xiang had overseen rapid growth of the industry spurred in part

by the liberalisation of investment rules that allowed insurers

to invest more of their assets at home and overseas.

China's insurance assets have nearly doubled over the last

three years, reaching 15.1 trillion yuan ($2.19 trillion) at the

end of 2016, CIRC data shows.

This buying spree, often funded by the issuance of

short-term products, had sparked alarm among regulators, leading

the CIRC to restrict insurers selling universal life and other

products. More recent rules bar insurers from opening new

subsidiaries and branches if they rely heavily on these

products.

Leon Qi, Head of Greater China Financials Research at

brokerage Daiwa, said China's top leadership has become much

tougher on financial regulatory officials.

Lawyers and market participants say Liu Shiyu, the head of

the China Securities Regulatory Commission, has taken a more

aggressive stance than his predecessor, Xiao Gang, who was

removed from his post in February last year after critics

accused him of mishandling the 2015 stock market crisis.

(Writing by Michelle Price; Additional reporting by Ben Lim and

Matthew Miller in Beijing and Umesh Desai in Hong Kong; Editing

by Sam Holmes)