New risk-based model for insurers

Insurance companies in China will be subject to a new risk-based solvency system this year as the insurance regulator wants to improve risk management and use of capital, the China Insurance Regulatory Commission said in a statement yesterday.

The new solvency system, known as the China Risk Oriented Solvency System, or C-ROSS, is set to replace the current scale oriented solvency system implemented a decade ago.

"After three years' endeavor, the CIRC has completed development of all pillar technical standards of the second-generation solvency system," CIRC Chairman Xiang Junbo said in the statement on its official website.

"The regulator and insurance companies will be committed to reconstructing and upgrading company management operations according to the requirement of the new system," Xiang said.

Inheriting some features from the Europe Solvency II system, C-ROSS adopts the "three-pillar" framework that comprises quantitative inspection, qualitative supervision and market discipline.

The new system aims to measure the risks insurance companies undertake scientifically and comprehensively and to link capital requirements more closely to risks.

The new system's 17 regulatory standards were approved on Tuesday and the regulations will be released in the near future, according to the CIRC statement.

But insurance companies will be allowed a transitional period this year to allow them to adapt to the new standards flexibly, the statement said.

The impact of C-ROSS will be different for each insurance company but the CIRC has previously estimated that the new system could free up about 550 billion yuan (US$88.8 billion) in capital requirement.