China’s insurance regulator recruits externally to boost solvency supervision

China’s top insurance regulator is turning to outside veterans to strengthen solvency management as it moved from a scale to risk-oriented system amid the rapid growth of the sector

PUBLISHED : Wednesday, 31 May, 2017, 4:47pm
UPDATED : Wednesday, 31 May, 2017, 10:14pm

China’s top insurance regulator is turning to external veterans to set up a new solvency supervision experts consulting panel, another sign to further beef up risk management capabilities amid the rapidly growing sector.

The new committee is charged to advise the regulator on pressing insurance solvency issues, monitor development of international practices, and provide support to international exchange and cooperation, as well as participate in the regulator’s inspection and evaluation of Chinese insurers, the China Insurance Regulatory Commission said on its website on Wednesday.

The recruitment is open to qualified experts from the academic, corporate and government backgrounds.

China has already shifted to a risk-oriented solvency system since 2016 from a previous scale-oriented one, to boost capital requirements, risk management and transparency among insurers. CIRC also aims to bring China in line with comparable global standards.

“The new panel indicates that the regulator is attaching greater importance to outside forces in helping it strengthen solvency supervision,” said Zhong Ming, an insurance professor at Shanghai University of Finance and Economics.

“The risk-oriented solvency framework itself is borne out of drawing on the experiences of others.”

Under China’s risk-based capital regime known as C-ROSS, insurers which manage risks better adhere to less stringent capital requirements, and vice-versa.

The risk-oriented solvency framework itself is borne out of drawing on the experiences of others
Zhong Ming, Shanghai University of Finance and Economics

The CIRC said it would give priority to candidates who can work independently in English, and are below 45 years old. Members of the new committee will have a three-year term of service. Candidates can apply to the regulator by June 30.

Zhong added that by publicising the requirements, including qualifications, responsibilities and obligations, the regulator has adopted a more structured approach, given that it has referred to outside veterans for advice but in a more informal way.

Andy Ng, EY Greater China insurance leader, said the new committee showed that the regulator is more open-minded to tap external forces; the industry would benefit from the regulator being updated with the latest industry trends frequently and in a practical manner.

Chinese insurers lack sufficient risk management professionals and tools when they were coping with the risk-oriented solvency system, an earlier survey by accounting firm PwC found.

China’s insurance sector has been growing on a fast track.

Chinese insurance premiums grew by 28 per cent last year at their fastest pace since 2008, according to official data. Growth accelerated to about 33 per cent from a year earlier to 1.6 trillion yuan (US$234.5 billion) in the first quarter this year.

Yet the rapid expansion was eclipsed by rampant sales of essentially short-term wealth management products and insurers’ aggressive acquisition attempts at listed companies, which not only undermined the stability of the industry, but also exposed them to a mismatch between liabilities and assets and capital fluctuations.

The CIRC has thus ramped up supervision to return the industry to its core mission to provide long-term security to customers. It has issued a series of rules and documents to curb aggressive investment particularly among some small players.