China’s insurance firms saw their net operating cash flow slump 65 percent last year, a source said citing data in a government memo, underscoring the challenges facing the sector as it reels from a state-led crackdown on sale of risky investment products.

The regulatory crackdown on what is seen as an excessive use of universal life products by some insurers has taken its toll, as evident from the drop in net operating cash flow to 633 billion yuan ($100 billion) in 2017.

Senior industry sources say the going will only get tougher, especially for the smaller players.

The clampdown on short-term, investment-focused products has already led to a sharp drop in insurance premium income, cash flow and even net cash outflow at some firms, an insurance company executive said. “Liquidity risk is becoming a major problem for life insurers,” he added.

According to the first source, net operating cash flow of life insurers in China dropped 47 percent last year, while property and casualty insurers saw their positions swing to negative. The source, who spoke to Reuters on Tuesday, declined to be identified due to rules on speaking to the media.

The China Insurance Regulatory Commission (CIRC), which has not published any data on the sector’s overall cash flow position, did not respond to a request seeking comment.

However, CIRC’s vice chairman said in a statement on Wednesday that the regulator would “pay high attention” to liquidity, credit and asset-liability mismatch risks.

A handful of insurance firms, which have issued higher-yielding products to raise funds to acquire stakes in market-listed companies, have already been punished.

Anbang Life, a key part of Anbang Insurance Group Co – one of China’s most acquisitive firms overseas – was barred in May last year from applying to issue new products for three months.

Last week, the insurance regulator said universal life insurance fund assets dropped 50.3 percent in 2017.

Shares of a number of large listed Chinese insurers rose in Hong Kong trading on Wednesday, with China Taiping Insurance Holdings Co gaining 3.26 percent and China Life Insurance Co up 2.34 percent.

Smaller Players Hardest Hit

The crackdown has been particularly painful for aggressive smaller, unlisted insurers that have enjoyed years of expansion.

These insurers are now struggling to transform their product structures, while large insurers are able to maintain ample liquidity and high solvency ratios thanks to their focus on long-term products and conservative investment.

“It’s the smaller insurers that will have problems,” said a second insurance company executive, who expects consolidation in the market this year among the smaller players.

Funde Sino Life Insurance Co, battling a negative net cash flow for the last three quarters, is looking to pursue an early exit from non-strategic investments under conditions to ensure the Shenzhen-based company’s liquidity, according to its solvency reports.

Foresea Life Insurance Co, also based in Shenzhen, is selling more long-term products and allocating more into liquid assets, among other measures, to curb liquidity risk.

In February, CIRC banned Foresea Life’s former chairman, Yao Zhenhua, from the insurance industry for 10 years due to violation of regulations in its usage of insurance funds. Foresea is a unit of a unit of financial conglomerate Baoneng Group.

The implementation of a risk-oriented solvency system by the regulator will further widen this differentiation in the life insurance industry, as the C-ROSS favors long-term protection-type products, Moody’s said in a December report.

Divergence in solvency between the large and small property and casualty insurers has become more acute in this increasingly competitive sector, according to the report.

“We can’t get any product approvals,” said the second insurance executive. “There is less emphasis on growth this year.” ($1 = 6.3355 Chinese yuan renminbi) (Additional Reporting by Engen Tham in SHANGHAI)