Slowly emerging from the epic hangover that befell it after a daredevil asset binge, Anbang looks to be on the virtuous path back to becoming a more circumspect liability-driven insurer.

In a statement on Friday, the China Banking and Insurance Regulatory Commission (CBIRC) said it had approved changes in Anbang’s shareholding structure, which left China Insurance Security Fund (CISF) owning 98.23% of the firm. The remaining stake is split between SAIC Motor Corp and China Petrochemical Corp.

CISF is an industrial risk-bailout fund formed by contributions from insurance companies and is managed by the state-owned China Insurance Security Fund Company.

Anbang said in April that CISF had pumped Rmb61.9 billion ($9.5 billion) into the company without disclosing how much equity had been taken up. By stabilising the group's finances and guaranteeing policyholder interests, this nationalisation is seen as a necessary first step in transforming Anbang back into a standard insurance company that prudently manages the funds it accumulates to provide cover for its clients, rather risking them on a spree of trophy assets.

Anbang will likely become a private insurer again but a liability-driven one, investing in fixed-income instruments and assets that match its liabilities, the Hong Kong-based investment head of a foreign insurer, told AsianInvestor on condition of anonymity.

“The asset-liability management of insurance policies should not be the responsibilities of the country. It should be managed by the company itself. So Anbang will finally return to the market (and be re-privatised),” he said.

It will likely take time though, he warned, for the new owners to reshape Anbang's investments.

The Wall Street Journal reported on June 22 that the initial one-year time frame outlined by the government in its seizure notice could yet be extended by another year if necessary, citing an unnamed source.

UNWINDING POSITIONS

Asset and liability management (ALM) — matching the projected returns and duration of its investments to its expected obligations to policyholders — was for a long time not seen as central to the insurer.

Under the helm of former chairman Wu Xiaohui, the insurer had a different strategy: offer high-yielding investments packaged as insurance products to raise funds and then use them for global acquisitions, including prime Manhattan real estate.

The firm's ensuing growth proved spectacular; from its founding in 2004, Anbang amassed assets worth Rmb2.5 trillion ($396 billion), equivalent to 3.4% of China’s GDP by August 2017, UBS estimates.

But there were adverse side-effects as the investment strategy used to invest these sums raised credit and duration mismatch risk, Moody’s said in a report in March 2017.

Anbang and other similar insurers maintained large cash holdings to meet potential high surrender rates, while investing long-term non-cash holdings in higher-risk assets to achieve the target returns. It treated the insurance business as a cheap funding platform.

So its practice does not match the philosophy of a life insurer, the investment head said.

For Anbang to become a liability-driven investor, it will probably have to dispose of some of the illiquid assets on its investment book. And steps are being taken to that end.

Chinese regulators have appointed China International Capital Corporation and UBS to develop a process to unwind its investments, which include holdings in New York hotels, rescue financings of troubled European financial institutions, control of a South Korean insurer and substantial equity stakes in about 20 listed companies in China, Financial Times reported in late May, citing people with direct knowledge of the matter.

The assets have been divided into real estate holdings and financial holdings. Unwinding some of its offshore investments could be particularly tricky, according to the news report.

TEMPORARY

Chinese regulators have repeatedly said that the nationalisation of Anbang will only be temporary.

The capital injection from CISF maintained the registered capital of Anbang at Rmb61.9 billion, the CBIRC said in a statement on April 4, and was meant to ensure an adequate solvency ratio, stabilise operations and effectively protect the interests of policyholders.

Anbang aims to bring in strategic shareholders as soon as possible to realise an orderly and safe exit for the CISF, CBIRC said.

Anbang’s dramatic fall from grace happened on February 23 when the Shanghai Prosecution Service formally announced it would prosecute Wu for "fraudulent fundraising activities" and "misuse of his position" — a rare case of a company head being charged over a business's wrongdoing,

Shortly after that, the-then insurance regulator announced it would lead a working group to seize control of Anbang for the next 12 months. 

Wu was subsequently sentenced to 18 years in jail in early May. South China Morning Post reported on May 30 that he has lodged an appeal against his conviction.