New China Life Insurance -- A Thousand Days of Struggle

At the end of 2009, New China Life's total assets were valued at nearly 190 billion yuan, of which 95 percent are entrusted to New China Asset Management Co. to carry out investments. After Guan was removed from his post, innovative ideas for investment ceased and capital was primarily invested into the stock and bond markets, leading to lackluster results.

A high level executive at New China Asset Management said that while the company had negative returns on investments in 2008 and lost 1.3 billion yuan, the company still "came out even" in terms of overall accounts.

Faced with over two years of barely passable investment results, New China Life employees reported on numerous occasions that the company's asset management team lacked adequate professional standards. Employees were also dissatisfied with the way high level executives at the company were able to purchase expensive automobiles, sign up for expensive golf club memberships, organize company trips to Europe and the United States and even hurry to issue large bonuses before Central Huijin became a shareholder.

In truth, the poor performance of New China Life's asset management arm was deeply rooted in the company's ineffective corporate governance.

On July 3, 2006, New China Asset Management was formed in order to manage investments of New China Life's insurance capital. In theory the company should have been wholly owned by its parent New China Life. But under Guan's special arrangement during his tenure as Chairman, New China Asset Management had a registered capital of 100 million yuan of which New China Life put up 95 million while five other shareholders held one million yuan each.

In May 2007, the China Insurance Protection Fund bought the shares of the five above-mentioned shareholders in New China Life, but the shares held by the five in New China Asset Management had not yet been worked out. After Guan's crimes were made public and he was removed from his posts in both companies, New China Asset Management went through a long period without a Chairman. The company was even managed simultaneously by two different management teams of equal status. 

A New Round of Silent Warfare

Since the end of 2006 when Guan was removed from his post, it has taken three long years to witness the entrance of a new shareholder. Central Huijin's first move as the company's new shareholder was to bring New China Life back to having a solid legal governing structure, followed by appointing a new board of directors for New China Asset Management and enhancing the company's professional investment capability. 

In the second half of 2009, the company finally made some progress in share restructuring. On October 28, the CIRC announced that it had already approved of the company's revised charter in which shareholders would be reduced from six to four. With the new charter, New China Asset Management is now in charge of 97 percent of the company's assets. 

On January 14, New China Asset Management's shareholders and board of directors convened and brought on a new management team to be hired for an initial term of three years.

"One hundred billion yuan in assets all belong to this asset management company – they cannot afford even the slightest slipup," said an insider close to New China Life.

In addition to corporate governance issues, the most difficult challenge facing New China Life is insolvency. Solvency for an insurance company means that the company has the ability to cover claims and pay insurance benefits. By the end of 2008, New China Life's solvency rate had fallen to 27.43 percent, far below the 100 percent required by regulatory authorities. The market recovered to some extent in 2009, but the company's solvency rate was still gravely insufficient, and as a result it was listed in 2009 with five other insurance companies on the insolvency blacklist.

Neither increased capitalization nor a public listing will be able to help New China Life overcome the obstacles of determining and quantifying the influence that Guan created on the company, whether or not the company's accounting statements can show three years of consistent profitability and whether or not the company can pass an external audit.

Caixin learned that New China Life had already accounted for relevant losses since the end of 2006. According to the company, meeting the condition of consistent profitability for three years as a prerequisite for listing publicly would not be difficult. At the same time, as the trial against Guan continues, state auditing ministries are conducting deep investigations into the company and its books. "There will be a day when the truth comes out," said one insider close to New China Life.

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