CIRC may change in­sur­ance fund rules

China Daily European Weekly - - Business - By LI XIANG lix­i­ang@chi­

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.

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