China, which is seeking to halt illegal outflows of funds, is concerned that buying overseas insurance has become a way for Chinese to move money abroad amid concerns over yuan depreciation, volatile stock markets and a slowing economy, avoiding capital restrictions.

The country's insurance regulator recently visited foreign life insurance firms and intermediaries in Beijing as part of investigations into the illegal sale of insurance products in Hong Kong to mainland Chinese, the official Shanghai Securities News reported on Monday.

The investigation arm of the China Insurance Regulatory Commission (CIRC) found that some insurers were disrupting the mainland insurance market by mis-selling insurance products and using devious marketing methods, the paper said, without disclosing its sources.

The paper did not name the foreign companies that the regulator visited.

The CIRC was not immediately available for comment.

The report comes after China's biggest bank card provider UnionPay said on Saturday it will tighten regulations on how mainland customers can use its debit and credit cards to purchase Hong Kong insurance products.

Foreign insurers are not allowed to sell or market certain types of insurance on the mainland and mainland Chinese are not allowed to spend more than $5,000 (4,104 pounds) per transaction on overseas insurance products.

The UnionPay restrictions sent shares of Hong Kong-listed insurer AIA Group tumbling as much as 7.2 percent to a three-and-a-half-month low on Monday morning. The shares cut their losses later to be down 5.3 percent.

Hong Kong's premiums business from the mainland will shrink because UnionPay was the main channel used by Chinese to purchase saving products, according to a research note from Nomura, which downgraded its rating on AIA stock to 'Neutral'.

Leon Qi, an analyst at Daiwa Capital Markets Hong Kong, said in a note that mainland customers accounted for more than 20 percent of AIA's total annualized net premium in the first half of this year.

Shares in Hong Kong of Canada's Manulife <0945.HK> fell as much as 1.95 percent initially on Monday but later trimmed the losses to be down 0.7 percent.

CAPITAL OUTFLOWS

China has seen a pick up in capital outflows amid concerns about a slowing economy and further depreciation in the yuan currency, which has weakened to six-year lows. That has prompted the government to plug some overseas investment channels.

New insurance premiums from mainland Chinese visitors in Hong Kong surged to HK$16.9 billion ($2.18 billion) in the second quarter this year, more than double the volume for the same period of 2015, Hong Kong government statistics show.

Regulators have uncovered illegal capital outflows of $8.43 billion so far this year, through underground banks.

Overseas insurance products can serve as a store of wealth and as offshore collateral for other potential investments such as property, analysts and insurance sector insiders say.

On Friday, China's foreign exchange regulator told banks to strengthen checks on foreign exchange transactions to make sure they were genuine and based on actual needs.

(Additional reporting by Sumeet Chatterjee and Donny Kwok in Hong Kong; Editing by Kim Coghill and Muralikumar Anantharaman)

By Engen Tham