The domestic insurance industry faces risks involving liquidity, fund allocation and development strategies, and some of these risks are emerging after companies' rapid expansion in recent years, an official of China's top insurance regulator said.
Unlike traditional risks in the sector, current risks - especially liquidity risk - are harder to handle, as a single company may be the source of much risk, Chen Wenhui, vice chairman of the China Insurance Regulatory Commission (CIRC), told the Xinhua News Agency in an interview published on Thursday.
Without awareness of maintaining proper capital and debt positions, some insurers have used short-term funds to invest in long-term projects, while others didn't assess the risks of their investments beforehand. These practices can "easily result in liquidity risk" if policy sales dry up or many policies are terminated early, he said.
Since late April this year, the CIRC has announced a series of measures to handle these risk points. On May 5, the commission also issued an order to make up for supervision shortcomings and establish a strict and effective supervision system.
"At present, the industry has 16 trillion yuan ($2.36 trillion) in assets, but the liquidity risks are concentrated in a few companies," he said, noting that the CIRC has assigned different departments to supervise key companies according to risk categories, features and degrees. The commission has drawn up pertinent risk warnings, assessments and response plans, he said.
In the short term, these companies' liquidity issues can be solved by selling units that don't complement their main businesses, he said, noting this will relieve insurers' capital pressure while not causing volatility.
To fundamentally solve the issue, insurers should improve their corporate governance - they should not be dominated by any single shareholder and fully pay up their subscribed registered capital, according to Chen.
He said that the CIRC will channel insurance capital into crucial national strategies and infrastructure, and will improve the sector's capability to serve real economy.
