The ratings agency said life insurers will continue to shift towards riskier asset allocations over the next 12-18 months to support their business growth and investment returns amid the current low interest rate environment.
This comes despite the China Insurance Regulatory Commission’s (CIRC) most senior official Xiang accusing insurers last December of behaving like “barbarians” over their conduct during acquisitions.
The regulator has also repeatedly warned insurers against the risks of selling high cash-value short-term universal life insurance products as well as short-term trading, announcing that it plans to roll out new rules to reduce the proportion of insurance funds allowed to invest in stocks.
It will also intervene if insurers make frequent share purchases.
The CIRC added that insurers need to "return to basics" and stick to their main business of selling insurance instead of investment products, warning that their share buying has been mostly speculative and has disrupted market stability.
At the time, the watchdog announced it had suspended Evergrande Life, the insurance unit of the country’s largest property developer, China Evergrande Group, from investing in stocks, accusing it of short-term trading that violated investment rules.
Despite the crackdown, Kelvin Kwok, a Moody's Associate Analyst, the industry's exposure to single-name equity investments is “rising and increasing concentration risk” leaving the insurers' profitability and capital profiles sensitive to capital market movements.
The CIRC is also looking to cut how much a single shareholder can own in an insurer, as it steps up supervision on insurers’ shareholding structure to combat the spate of aggressive acquisitions in recent years.
Last year, Foresea Life, a subsidiary of Chinese financial conglomerate Baoneng Group, was forced to reduce its shares in developer China Vanke after months of aggressive stake building. The firm has also been wrapped on the knuckles for market speculation.