CHANGES TO CHINA'S SOLVENCY FRAMEWORK CREDIT POSITIVE FOR INSURANCE MARKET - AM BEST

KUALA LUMPUR, Jan 5 (Bernama) -- Global credit rating agency, AM Best expects the revised quantitative and qualitative requirements under the China Risk-Oriented Solvency System Phase II (C-ROSS Phase II) to have significant impacts on the various insurance market segments.

The Best’s Commentary, ‘Changes to China’s Solvency Framework to be Credit Positive for Insurance Market’, states that this recent revision to China’s solvency regime should allow for greater transparency in risks and capital quality.

Most insurance companies are likely to observe various degrees of decline immediately in solvency ratios, depending on their product mix, capital structure, and aggressiveness investment strategy. Under the updated solvency regime, capital recognition has been tightened and the industry is expected to see a drop in admitted capital in solvency calculations.

Insurers will also face higher capital requirements arising from long-term equity investments, particularly for investments in non-insurance subsidiaries that give the insurer controllership, which will be 100 per cent risk charged.

“AM Best views these changes to be credit positive as they drive a more thorough understanding and accurate assessment of investment risk, and seek to improve insurers’ capital management strategies,” said Christie Lee, senior director, analytics, AM Best in a statement.

The report notes that the implementation of C-ROSS Phase II will extend greater support to small and medium-sized non-life companies in the form of relatively smaller increases in the motor insurance risk charge amid the challenges from the motor comprehensive reform.

The regulator has abolished favourable treatment for large insurers based on the premium size on the motor insurance risk base factor, allowing for fairer competition between large and smaller insurers in terms of the capital requirement to support business growth.

For life insurers, C-ROSS Phase II will lead to more stringent admitted capital recognition from long-term policies’ expected future profits.

AM Best, while noting that asset-liability management is likely to become more important in solvency management under the revised regime, is also of the view the industry is able to mitigate the solvency pressure, given its current strong solvency.

For more information, visit www.ambest.com.

-- BERNAMA