BEIJING (Reuters) - China's insurance regulator said on Friday it would step up supervision over insurers' asset liability management, the latest move in a sector-wide crackdown on insurers' risky activities as Beijing seeks to prevent financial risks.

 

The insurance sector is facing increasing difficulties in matching assets and liabilities due to "major conflicts" between highly volatile investment income and fixed liability cost, the China Insurance Regulatory Commission (CIRC) said in an online statement.

 

In particular, some insurance companies that lack effective corporate governance have adopted aggressive operational and investment strategies, causing a huge risk exposure and liquidity issue, the CIRC said.

 

"Asset liability management is a fundamental ability and the core competitiveness for insurance companies, especially for life insurance companies," the CIRC said in an online Q&A statement.

 

The CIRC has set up a committee to supervise insurers' asset liability management and is drafting additional rules.

 

The new set of regulations will be put into effect in the beginning of 2018, it said.

In recent years, a score of Chinese insurers have taken sizable stakes in listed companies, funded by issuing high-yield, short-term universal life insurance and other investment products.

On the asset side, the regulator asks insurers to increase duration management, cost benefit management and risk budgeting to prevent risks caused by a mismatch of assets and liabilities.

On the liability side, the CIRC will tighten scrutiny over mid- and short-term insurance products, which usually refer to so-called universal life insurance policies, the regulator said.

For insurers that poorly manage asset-liability matching, the CIRC will restrict their investment level and their sales of short-term products as well as increase the requirement for their solvency level, it said.

Well-behaved insurers will be rewarded with pilot policies for fund investment and new product issues, it said.

Earlier this year, the CIRC banned the chairman of Foresea Life from the insurance business for 10 years, citing violations of rules in the firm's use of insurance funds. [nL4N1G93AM]

The regulator also separately restricted Evergrande Life's stock trading activities for a year after accusing the insurance subsidiary of conglomerate China Evergrande Group <3333.HK> of having engaged in irregular investment activities.

(Reporting By Shu Zhang and Ryan Woo; Editing by Gopakumar Warrier)