CIRC prohibits selling universal life products as add-ons to life policies

Risk-cutting move could affect the sales of several life insurers aggressively chasing returns

CIRC prohibits selling universal life products as add-ons to life policies

Insurance News

By Gabriel Olano

The China Insurance Regulatory Commission (CIRC) has issued a ban on life insurance firms selling universal life insurance as add-ons to conventional life insurance policies.

These universal life products, which are similar to high-yield wealth management products, usually guarantee short-term gains and flexible surrender terms. Recently, these have attracted some controversy, as several insurers have used these to fuel aggressive investments, exposing the sector to risk.

In a circular outlining the regulations for development of life insurance products, the CIRC stated that universal life insurance can no longer be offered as riders, reported the China Securities Journal on Tuesday.

The move comes as part of the regulator’s efforts to limit risks to the insurance industry, following the dismissal of the CIRC’s chairman in April due to corruption allegations.

The development could also put a dent in the strategies of some insurers such as Anbang Life Insurance and Foresea Life Insurance, who used these products to build up investment funds to fund equity investments both domestically and abroad.

“The new rule will have a major impact on the sector as several listed life insurers have been combining universal life policies as a rider to traditional long-term policies to promote sales,” Dayton Wang, an analyst formerly with Guotai Junan International, told the South China Morning Post.

However, universal life and traditional life policies have different terms, such as durations and surrender requirements, exposing policyholders to risks.

Several insurers, Anbang and Foresea included, were recently banned by the CIRC from selling new universal life insurance products and were ordered to correct their business processes

“Insurers are exposed to the risks of a stampede for early surrender if returns fall short of expectations,” warned Sally Yim, an analyst at Moody’s Investors Service.

“They could also face liquidity risks due to a mismatch between assets and liabilities where they’re selling short-term products but investing in long-term assets,” she added.

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