Risk in spotlight for Chinese regulators
China has been undergoing significant legal and regulatory reform in the (re)insurance sector for some time and this is set to continue into 2017.
The China Insurance Regulatory Commission (CIRC) first announced plans to implement a new solvency regime in March 2012. After several years of consultation and testing, the CIRC published the China Risk Oriented Solvency System (C-ROSS) rules in 2015. This shifts the focus from compliance monitoring and capital to the evaluation of the risk profiles of insurers, as well as the quality of their risk management and governance systems.
Under the previous Chinese solvency regulation, solvency capital was calculated using a fixed formula. C-ROSS uses a three-pillar approach, which is very similar to Europe’s Solvency II. Pillar I deals with quantitative capital requirements, which are linked to three types of risk: insurance risk, market risk and credit risk.
The process of implementing the C-ROSS is continuing and regulatory activity will continue in 2017. Associated with the C-ROSS rules, the regulator is establishing detailed rules for offshore reinsurers to provide collateral, guarantees and/or letters of credit in respect of reinsurance transactions with cedants in China.
While more flexibility will be given to insurers in respect of product diversification and business innovation, the regulator will seek to strengthen insurers’ corporate governance and the management of controlling shareholders and actual controllers of an insurer.
The regulator is keeping a close eye on the use of insurance funds in the equity market and is likely to improve its supervision in this respect.
