CIRC may change insurance fund rules
China’s top insurance regulator is considering revising the rules for the country’s insurance security fund, which would allow the fund to provide necessary liquidity support to insurers in case of crisis.
Industry experts say the move highlighted the regulatory intention to boost the role of the insurance security fund in preventing industry risks, since some insurers may be exposed to liquidity problems as the authorities have substantially tightened regulations to curb systemic financial risks.
The revised rules would require insurers to submit a certain proportion of capital to the fund based on the evaluation of their risk management capability, meaning that some insurers would likely face higher capital requirement if they have poorer risk management performance, business newspaper Shanghai Securities News reported on Dec 12.
The new rules would also expand the usage of the fund, allowing it to offer capital support to insurers if they face a liquidity crisis. The maximum amount of capital that insurers could obtain from the fund as liquidity support could not exceed 15 percent of the outstanding value of the fund in the previous year, the report said.
The China Insurance Regulatory Commission is soliciting industry opinion on the draft revision.
“The new rules have to do with the rising liquidity risks in some life insurers along with the transformation of their business model. There has been a gap between the current scale of the insurance security fund and the needed amount of capital to cover liquidity risks in the industry,” says Zhu Junsheng, a financial researcher at the Development Research Center of the State Council.
The draft rules also would lower the amount of capital support to insurers’ risky business such as universal insurance, a type of investment-focused life policy, which Zhu says reflected the regulatory intention to encourage insurers to focus on protection products instead of investmentdriven business.
China set up the insurance security fund in 1995 to resolve industry risks and to protect the interests of policyholders in the event of an insolvency of an insurance company.
The outstanding value of the fund stood at 107.8 billion yuan ($16.3 billion; 13.9 billion euros; £12.2 billion) by the end of July, with property and casualty insurance funds accounting for 63.7 percent of the overall fund.