Chinese insurers lack the tools to better match premiums with investments: PwC survey

Just 13pc of respondents have developed tools that can properly match their assets and liabilities, or investments and premiums, at any given time

PUBLISHED : Tuesday, 06 June, 2017, 3:34pm
UPDATED : Tuesday, 06 June, 2017, 10:51pm

Just 13 per cent of respondents have developed and use tools that can properly match their assets and liabilities, or investments and premiums, in reflecting a risk-oriented solvency system, a new PwC report claims.

Too many Chinese insurers lack sufficient tools to accurately match premium growth with investments, a key component in accessing risk and monitoring solvency levels, the global accounting firm says in the study, a key requirement of any financial services-related company in China, as Beijing reins in high risk levels.

Between March and May, the accounting firm polled 107 insurers on how they are coping with mainland China’s risk-oriented solvency supervision framework, that took effect since 2016.

Such risk-oriented solvency supervision systems should now be integral tools in business planning and operations, PwC said.

Insurers have attached growing importance to investment risk and asset/liability management against the new regulatory environment. Yet they are still falling short of establishing the management means, models, technologies and tolls needed to handle the issue
PwC report

Around 12 per cent said they had set up the means, but are yet to use them in daily business operation, while another 47 per cent said they haven’t developed any methods at all and admitted to having the necessary systems in place, between their investment and product departments.

“Insurers have attached growing importance to investment risk and asset/liability management against the new regulatory environment,” PwC said in a report.

“Yet they are still falling short of establishing the management means, models, technologies and tolls needed to handle the issue.”

China has shifted to the new anti-risk rational from its previous scale-oriented approach, to boost capital requirements, risk management and transparency among insurers.

Different from a previous scale-based capital regime, the China Risk-Oriented Solvency System (C-ROSS) regulates mainland Chinese insurers’ capital adequacy, and the China Insurance Regulatory Commission (CIRC) is still considering further shake-ups and tightening regulations for smaller, riskier insurers.

Insurers that have introduced better risk management measures can enjoy less capital requirements. The regulator has established an assessment system to evaluate insurers’ risk management, granting those scoring higher more leeway in capital requirements.

“Assets and liabilities management and investments risks stand out as two key regulatory themes this year,” said Jimi Zhou, a PwC partner.

“Risks might be further exposed as regulators step up supervisions on investments, including equities and alternative investments.”

Insurers expect the regulator to become even more stringent in implementing the risks-oriented solvency assessment, as it continues its efforts at ramping up supervision of the rapidly growing sector, the survey found.

Insurers have been asked to check the authenticity of their solvency data between 2016 and the first quarter of 2017 and report to regulator by June 30 as the regulator aims to root out rash practises or irregularities.

PwC declined to name the insurers involved in the study.

But Li Hao, deputy general manager of Ping An Health Insurance Co, told South China Morning Post that it has been following the new solvency regime in various aspects of its business operations including new products development, sales and marketing as it keeps a close eye to trim risks on different fronts of business.

Insurance premiums grew by 28 per cent in China in 2016, their fastest pace since 2008.

That growth accelerated to about 33 per cent in the first quarter of this year, to 1.6 trillion yuan (US$234.5 billion)

Yet even that sizzling growth was eclipsed by rampant sales of universal life policies – essentially short-term wealth management products – by small insurers who continued using premiums to fund aggressive and sometimes risky investments, triggering concerns of a yawning mismatch between assets and liabilities.

It’s against that backdrop that the CIRC has moved to strengthen its supervision of returning the industry to its core mission of providing long-term security to customers, rolling out a spate of documents to curb risk and root out irregularities.

The PwC survey covered life insurers, property and casualty insurers, reinsurers, pension insurers and health insurers. Respondents accounted for 80 per cent of China’s insurance market with combined premiums of 2.4 trillion yuan in 2016.

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