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December 24, 2016

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Online bond insurance crackdown

By Feng Jianmin | December 24, 2016, Saturday | Print Edition

CHINA’S insurance regulator will tighten online bond insurance rules as a recent bond default appears to cause a 1 billion yuan (US$144 million) loss for a mid-range insurer.

A draft of the new rules limits insurance companies to a maximum coverage of 5 million yuan for each corporate policy-holder, and 1 million yuan for an individual, the Shanghai Securities News reported yesterday, citing a document it acquired from an unidentified source.

And total coverage under deals over the Internet should not exceed three times a company’s net capital.

The China Insurance Regulatory Commission urged insurers to be particularly cautious of selling policies to non-financial institutions and individuals and to avoid risks related to investment or speculation.

Insurers should also have a mechanism in place to suspend insurance trade when payouts and overdue payments reached a certain level.

The draft has been circulated within the industry since early this month and took on extra significance when it emerged that Zhejiang Property and Casualty Insurance Co was likely to be hit by substantial losses after a bond issuer failed to cover a bond sold on Zhaocaibao, an investment platform under e-commerce giant Alibaba Group.

Zhejiang P&C offers bond insurance coverage for deals reached on Zhaocaibao, and is responsible for paying the 1 billion yuan principal and 100 million yuan interest for more than 130,000 investors who bought the bond.

The bond was issued two years ago by Guangdong-based Cosun Group, which said in a statement on Tuesday that it was unable to pay principle and interest due to liquidity stress.

Zhejiang P&C on Thursday said the compensation process has started and that Cosun’s chairman, telecommunications tycoon Wu Ruilin, takes on an unlimited joint liability guarantee.

Zhejiang P&C has registered capital of 1.5 billion yuan, and ranks 31st among 58 Chinese P&C insurers in terms of gross premium income in the first 10 months of this year. Online bond insurance contributed almost half its net profit of 51.67 million yuan last year.

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