The Chinese conglomerate Anbang Insurance Group has seen a meteoric rise by almost any definition since its founding in 2004. It was originally a small auto insurer partially owned by an automaker in Beijing. Under Chairman Wu Xiaohui it has made a string of acquisitions that have propelled it to the upper echelon of Chinese corporations. Now, though, like Icarus, it may have flown too close to the sun.
Anbang announced Wu was stepping down from his role in the company soon after media reports surfaced Wednesday that he had been detained for questioning by authorities in Beijing. Today, six of the largest banks stopped selling Anbang’s life insurance policies, either voluntarily or at the suggestion of the Chinese government. Because banks are an important distribution network for life insurance policies in China, the decision is likely to be extremely damaging to Anbang.
As Anbang’s deals grew larger it folder insurance and financial services companies South Korea, The Netherlands, and Belgium into its Chinese life insurance business. It’s highest profile acquisition was of New York’s Waldorf-Astoria Hotel for $2 billion in 2014. According to filings made by the company, it now has $300 billion in assets and earns a profit of about $3 billion per year.
Lately, though, many of Anbang’s ambitious deals have fallen through without closing. It withdrew from a planned $14 billion acquisition of Starwood Hotels last year. A $1.6 billion for American insurer Fidelity & Guaranty Life also collapsed. Discussions with Jared Kushner on joint projects also went nowhere after criticisms over conflicts of interests marred the relationship.
Despite the setbacks, news of the detention of Anbang’s Chairman took many by surprise. He has been seen as a politically shrewd operator who is well connected and married to the granddaughter of former Chinese Premiere Deng Xiaoping.
The Wall Street Journal reported that the authorities detaining Wu were antigraft investigators who deal in “economic crimes.”
After years of unprecedented growth, Chinese officials are highly sensitive right now to risks in the economy and are clamping down on certain behaviors that carry the potential for systemic impact on the Chinese financial system. As Chinese insurers have increased the percentage of their portfolios, authorities have taken notice and discouraged the practice. Anbang had been among the most aggressive of any Chinese insurers.
Although no one yet knows exactly the specific reasons for Mr. Wu’s detention, it likely is due to a feeling that he was acting against the direction being set by Chinese leadership, particularly in aggressively pursuing deals internationally that have political ramifications.
Another potential, or secondary reason, is a desire to send a stronger message about excessive risk-taking at the company. In addition to its life insurance, Anbang has taken in massive quantities of money through wealth management products, an alternative to bank deposits carrying a higher return. Those deposits, held outside the core insurance business, has allowed Anbang to skirt financial rules limiting the amount of foreign capital held in Chinese insurance companies.
Later this year, Communist Party leaders will assemble for a leadership meeting, where key posts will be handed out and Party Chairman Xi Jinping is expected to be appointed to another five year term. Perhaps the only thing standing in the way of that is a crisis of some kind. It is not surprising then that after years of astonishing growth, Chinese authorities are shifting their attention to containing systemic risks. It can only be assumed that Anbang, and Wu, was not getting that message.
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