Weaker insurers struggle to meet stricter solvency rules

The mainland's fragmented insurance industry is undergoing a shake-up as smaller and financially vulnerable players continue to battle to meet tightened regulatory solvency requirements during the economic downturn.

About 14 insurers were likely to fail the solvency tests in the first half of this year, sources said, up from 10 which fell short of requirements last year. The result would be an acceleration in the trend towards consolidation in the industry, they added.

Solvency ratios measure the extent to which liabilities are covered by assets. When liabilities balloon as a result of increasing new insurance coverage and assets slump as investments lose value, solvency rates suffer.

Under the 'tiered regulatory monitoring system' of the China Insurance Regulatory Commission (CIRC), insurers have to report operational and financial data on a quarterly basis. Insurers classified in the lower solvency tiers face on-site examinations, restrictions on writing new business, management reshuffles and ultimately may be placed in receivership.

The nation has 47 non-life insurers and 56 life insurers. In a concentrated market, the top five biggest property and casualty companies account for a combined 75.5 per cent market share, while the top five life insurers hold a 78.5 per cent share.

Solvency problems beset smaller players that wrote new business when the economy was booming at low margins in a bid to increase their market share.