Evergrande Life Insurance told to strengthen its risk management

China's insurance regulator said on Tuesday that it does not support short-term speculative stock trading by insurance funds.

It will strengthen regulations about the use of insurance funds in stock market trading, a move that market analysts believe will help to reduce risky and speculative trading.

The key problem is that risky investments may yield short-term profits, but the danger of losses could endanger the company's ability to pay out money owed to its customers in the long-term.

A circular posted on the official website of the China Insurance Regulatory Commission said that it gave a verbal warning to Evergrande Life Insurance Co about the short-term speculative trading activities of the company.

CIRC also urged Evergrande to examine deeply the negative effects of the company's trading activities on the industry and demanded that the insurer stick to long-term value investment, which serves the core business of an insurance company and also promotes social and economic development. The insurer is also required to strengthen its risk management and investment planning.

Evergrande said it will implement these regulators' requirements and will strictly prevent similar activities in the future.

Analysts said that the regulatory move benefits the overall stability and healthy development of the A-share market and will guide investors to focus on value investment and analyzing the fundamentals of companies.

"Regulators have underlined the importance of managing the liabilities of insurers in recent months, urging insurers to strengthen risk management. Insurers with stronger capabilities to balance portfolios amid economic changes will be more likely to be able to adjust to the new environment and be less affected," said Luo Yi, an analyst with Huatai Securities