The China Insurance Regulatory Commission (CIRC) has reportedly issued new rules to strengthen the risk management of life insurance products, with restrictions on the proportion of short- and medium-term life business sold by insurers.

It is said the CIRC has stipulated that short- and medium-term insurance products should not account for more than 50% of an insurer’s total business by 2019, with the proportion reducing to 40% by 2020 and 30% by 2021.

The CIRC has also reportedly said life, annuity and nursing care insurance products should not be designed as short- and medium-term products as these products’ long-term and risk protection features should be emphasised.

According to the CIRC, universal life insurance interest rate caps on the reserve requirement assessment have reportedly fallen 0.5% to 3%. For traditional life products, the cap stays at 3.5%.

It is hoped the new policies will raise the standard on life insurer risk and asset liability management capability.

Investment-linked insurance is now reportedly categorised under short- and medium-term insurance products in a bid to improve supervision of this segment.

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The CIRC reportedly said there will be an independent assessment on investment-linked products, which are offered as a rider policy of universal life insurance. Actuarial responsibility is also said to be supervised under the new rules, with specific requirement and reporting role.

Overall, the CIRC reportedly said these policies aim to promote insurance core business value on protection.

Impact of C-ROSS in China

The new rules to strengthen the risk management of life insurance products come after the CIRC launched the China Risk Oriented Solvency System (C-ROSS) in January 2016.

The move has been widely regarded by financial service professionals as a major development in Chinese insurance regulation.

Liberalisation and diversification are essentially the key objectives for the new regime.

These new requirements will help create a fluid system that allows insurers to adapt quicker to the rapid changes, but might initially challenge smaller companies trying to meet heightened solvency standards.

For instance, insurers are expected to not only lower market-based pricing in order to maintain a high capital discipline, but also diversify their businesses more, moving into such lines of business as liability, and speciality to gain as much of a competitive advantage as possible.

Life businesses are expected to bear the brunt of this diversification, being asked to engage in increased promotion of affordable practices, such as regular premiums and savings in health care.

This will encourage better preparation for the next round of regulatory developments, but without meeting initial C-ROSS solvency requirements there is little chance of diversification or liberalisation. Thus, a failure to achieve solvency may leave some insurers unable to expand their businesses under the new model.