China:Regulator summons senior management of 12 insurers over negative spread risk

The CEOs and chief actuaries of 12 life insurance companies were called up earlier this week for “interviews” with the life insurance supervision department of the CBIRC over the risk of negative spread inherent in the universal life plans that they were selling.

The actual financial investment yields on these products were lower than the compensation rates in a period when interest rates are falling and the risk of negative spread is increasing, reported Yicai Finance.

The 12 insurers are small and medium-sized insurers that included three joint ventures.

Despite tighter supervision over universal life plans, such products still account for nearly 20% of the portfolios of life insurance companies.

In the general climate of declining interest rates in the past two years, many insurance companies have lowered their universal insurance payout rates. In June this year, the universal insurance payout rate fell to 4.16%, down by 6 basis points month-on-month and by 11 basis points year-on-year. The payout rate has been slashed from 7%-8% in 2015 to the current 3%.

However, some insurance companies offered universal life insurance payout rates in July were still higher than 5%, and even more than 6%.

In this regard, the CBIRC ordered the insurers to take immediate steps to rectify the situation before 1 September. It also directed the companies to provide explanations and related services to consumers.

Asia Insurance Review

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