China's Largest Insurer Chief Flees Country After Selling "Unsustainable" High-Yield Products

The general manager of Fanxin, China's largest insurance dealer, has been arrested (after fleeing the coutry with CNY 500 million) and the entire industry is now under close scrutiny after regulators found that the company was selling unauthorized fixed-income financial agreements. Fanxin offered huge commissions to its staff to sell 'wealth management products' that were merely used to buy more insurance products in what appears a ponzi-like scheme. Investors were 'encouraged' to purchase these with promises of yields up to 20%. As Caixin reports, "such a high yield promise is definitely unsustainable," as Fanxin customers "thought they were buying the normal wealth management products like the ones offered by banks," but actually these products were made by Fanxin and funds were put into higher risk insurance products. In an unsurprising echo from the 'liar loans' of the US, the documentation was often forged or had fake contact information that could have been easily detected, but insurance companies ignored the problems for the sake of premium revenues.

Via Caixin,

A fraud investigation into Shanghai’s largest insurance dealer has roiled the country’s insurance industry, prompting the regulator to meet and order closer scrutiny of such firms.

Chen Yi, the general manger of Fanxin Insurance Agency Co., was escorted from Fiji back to China by Chinese police on Aug. 19, Xinhua reported.

On Aug. 15, the Shanghai branch of the China Insurance Regulatory Commission (CIRC) said the company was selling unauthorized fixed-income financial agreements.

A source close to the company said Fanxin engaged in sales fraud to get high commission fees from insurance companies. Public security officials in Shanghai said they received reports on Aug. 12 that Chen had left the country with 500 million yuan ($81.7 million). They haven’t been able to confirm that figure.

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Fanxin has been selling several kinds of wealth management products that it developed without the necessary authorization. Some of the products had above-average yields.

“Customers thought they were buying the normal wealth management products like the ones offered by banks, but actually these products were made by Fanxin and funds were put into insurance products,” the source said.

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The company used the money people invested to buy new insurances products — or it just forged new insurance contracts — for the huge commission fees insurers paid, the source said. .

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To attract investors, Fanxin offered yields of up to 20%. “Such a high yield promise is definitely unsustainable,” the insider said.

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Some of the forged insurance contracts used fake contact information that could have been easily detected, but insurance companies ignored the problems for the sake of premium revenues, the source close to the company said.

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The first source close to the company said Chen is no longer the legal representative of the company. Jiang Jie, the company’s deputy general manager, has disappeared.