China’s implementation of a second-generation solvency regime – the China Risk-Oriented Solvency System (C-ROSS) – will prompt Chinese insurers’ to overhaul their investment strategies, underwriting policies, reinsurance arrangements, and capital management, according to Fitch Ratings.
The China Insurance Regulatory Commission promulgated the overall framework of the C-ROSS in May 2013 with the aim of enhancing solvency supervision. The regulator announced on 17 February 2015 the final rules of the new regime.
Go deeper with GlobalData
Chinese insurers are now required to calculate their solvency margins under the C-ROSS during the transition period, but still subject to supervision based on existing capital rules until the formal implementation of the C-ROSS.
The new regime, which will apply granular risk charges based on a more comprehensive assessment of insurers’ market, credit and insurance risks, will enhance Chinese insurers’ risk awareness.
This will prompt them to focus more on risk-adjusted returns when forming their investment strategies and improve their product mixes so that they sell more insurance policies with good profit margins after considering the required capital.
Fitch expects the new regime to drive Chinese life insurers to expand their long-term regular-premium policies.
The ratings agency said insurers with long-duration insurance liabilities could benefit from a release of insurance reserves, adding to available capital.
This is because the discount rates used to determine the insurance reserves under C-ROSS are linked to market interest rates, which will likely be higher than the rates used under the current regime, which are benchmarked to initial guaranteed returns of the policies (mostly capped at 2.5%).
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataOverall, Fitch Ratings said the new capital regime contains three key facets: capital, risk management and disclosure.
Insurers will be required to evaluate their risk management sophistication in terms of operational risk, strategic risk and reputation risk under the C-ROSS framework, in addition to quantitative capital adequacy assessment.
Furthermore, insurers will also need to enhance their transparency through greater information disclosure
