China:Anbang taken over by regulators, ex-top honcho to be prosecuted

The Anbang Insurance Group has made the headlines again with the Chinese government announcing last Friday that it has taken over management of the group for a year and that Anbang's former head is to be prosecuted for economic crimes, taking Beijing's drive to curb financial risk a step further.

The takeover, extendable for a second year, is taken to maintain normal operations at the company and protect consumers' rights, according to a CIRC statement. "Illegal business practices by Anbang Insurance Group may seriously threaten the solvency of the company," said the CIRC in the statement.

Public prosecutors recently filed a lawsuit against Wu Xiaohui, former Chairman of the board and general manager of Anbang, in the Shanghai Municipal No. 1 Intermediate People's Court, accusing him of illegal fundraising, embezzlement and abuse of his position, reported the Xinhua News Agency.

A working group has been established, formed by personnel from the CIRC, the People's Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the State Administration of Foreign Exchange, to oversee the takeover of the company, the statement said. The rights and liabilities of the company will not be changed after the takeover, it added.

"At present, business operations of the group are stable and the interests of consumers and stakeholders have been protected," said the statement.

During the takeover, Anbang will continue to operate as a private insurer, while more capital will be introduced to complete the company's shareholder restructuring, according to the statement. 

China's insurance law stipulates that an insurance firm can be taken over by regulators if it is insolvent, or illegal activities hurt the public interests and threaten its solvency.

The CIRC has deployed teams at Anbang conducting on-site checks and supervising operations since June 2017, according to the statement.

Wu was arrested in June last year after a heady period in which Anbang shot up to rank among China's top five insurers from previous obscurity. He had been seen as a politically-connected dealmaker who had married a granddaughter of the late Chinese leader Deng Xiaoping.

Anbang started out in 2004 as an auto, property and casualty insurer and entered the life insurance market in 2010, rising quickly to the ranks of the top three largest life insurers. The Anbang group made global headlines with its aggressive acquisitions of overseas assets including the $1.95-billion deal in 2014 to acquire the New York landmark, the Waldorf Astoria hotel. After a spate of high-profile deals worth over $30 billion, Anbang ran into hurdles even before Wu’s detention, failing to close on a handful of investments such as bids for Starwood Hotels & Resorts Worldwide and Fidelity & Guaranty Life in the US. It also faced criticism over its opaque shareholding structure.

Anbang also has significant stakes in a slew of major Chinese companies, such as banks and property developers. Late last Friday, China Minsheng Banking Corp, China Merchants Bank, developers China Vanke and Gemdale Corp said they had received similar notices from Anbang assuring them that there would not be immediate stake sales, reported Reuters.

The funds for the aggressive purchases were generated from the sales of single-premium, high-yield products, many of which could be redeemed within a short period at a profit. In 2016, the CIRC imposed caps on the sales of such products, warning that they posed financial risks.