China tightens scrutiny on insurers’ offshore financing as crackdown widens
Move is part of ongoing crackdown on risks and foul play in the insurance sector, and broader scrutiny of excessive capital outflows and irrational overseas deals
China has tightened its scrutiny on offshore financing for insurers to trim their leverage levels and curb risky overseas investments amid a widening crackdown of the industry.
Insurance companies’ outstanding offshore financing that is backed by domestic guarantees must be capped at 20 per cent of their net assets as of the end of the previous quarter, according to a joint notice from the mainland’s top insurance and foreign exchange regulators posted on Monday.
They must also report any overseas financing backed by domestic assets worth US$50 million or more to the regulators for assessment before the transaction is initiated, according to the notice – dated January 5 – from the China Insurance Regulatory Commission and the State Administration of Foreign Exchange.
Chinese companies commonly use domestic assets as collateral to secure capital overseas. While the practice had supported insurers’ global assets allocations and helped expand their overseas funding channels, it had also triggered problems in liquidity management and a high leverage level – borrowing and refinancing risks, the regulators said.
To avoid misuse, regulators are now limiting the funding to be used only by the insurer’s designated overseas affiliate in which it holds at least a 95 per cent interest in, said the notice. The funds are also banned from investments for arbitrage purposes or for illegal speculative transactions.
Insurers are required to conduct due diligence vigilantly and comply fully with state policies on overseas investments.
