China’s Insurance Sector Surpasses Expectations Says New Regulatory Body
The new regulatory body in charge of regulating China’s financial sector reported in its first work meeting in the middle of May that the performance of China’s insurance business in the first three months was better than predicted.
Since it took office on May 18, one of the National Administration of Financial Regulation’s first orders of business was to assess the financial health and overall risk of the insurance industry and its major players. The sector’s risk can be monitored and early warning indicators can be identified through solvency supervision.
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In March, the China Banking and Insurance Regulatory Commission was dissolved and replaced by the National Administration of Financial Regulation. In place of China’s central bank, this group will be responsible for supervising the financial sector and ensuring the safety of consumers and investors.
China’s Insurance Sector Surpasses Expectations Says New Regulatory Body
On May 10, Li Yunze, formerly the Vice Governor of Sichuan Province in the country’s southwestern corner, was promoted to the position of Head of the regulatory body.
The National Administration of Financial Regulation has stated that supervision over the insurance industry, particularly over insurers’ solvency, should be substantially reinforced to firmly preserve the ultimate goal of preventing systemic financial hazards.
At its first work conference, the NAFR, which was founded on the foundation of the former China Banking and Insurance Regulatory Commission, assessed the state of the Chinese insurance industry.
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The insurance regulator reported that first-quarter premium revenue increased 9.2% year-over-year to CNY1.9 trillion ($277.4 billion). Investments made using insurance money yielded a healthy 5.2% return on an annualized basis.
China’s Insurance Sector Surpasses Expectations Says New Regulatory Body
The regulatory body commented that the solvency ratios, which are a gauge of the risks faced by insurers, narrowed significantly and remained within a reasonable range. The average comprehensive solvency ratio of the 185 insurance firms was 190.3%, and the average core solvency ratio was 125.7%.
Newly added insurance policies surged 34.6% to CNY15.8 billion ($2.2 billion) in Q1 2023, while the amount in compensation paid jumped 9.3% to CNY493.2 billion ($70.1 billion).
Insurance firms had CNY28.4 trillion ($4 trillion) in assets as of March 31, an increase of 4.5 % from the beginning of this year. The balance of capital utilization in the insurance sector climbed 10.7% to CNY26.3 trillion. Actual capital reached CNY4.7 trillion ($668.7 billion) and the minimum capital requirement was CNY2.4 trillion.
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The minimum solvency adequacy ratio for insurance companies is set at 100% in China. The regulator will require the insurer to suspend all businesses once the ratio drops below the 100% level.
At the end of 2022, the average comprehensive solvency adequacy ratio of Chinese insurance companies was 196%.
The decline in insurers’ solvency adequacy ratio has narrowed significantly and remains within a reasonable range, the NAFR said at its meeting.
China’s Insurance Sector Surpasses Expectations Says New Regulatory Body
After organic growth in capital slowed in 2022 due to global market volatility, smaller and weaker Chinese life and non-life insurers are likely to seek extra capital this year to strengthen their solvency positions, as reported by Fitch Ratings.
Fitch forecasts that China’s insurers will maintain their development pace this year, despite the country’s optimized COVID-19 control efforts since December.
Although it was previously fixed at 3.5%, market sources predict that the assumed interest rate used by Chinese life insurance companies would be cut in June. The cost of insurance businesses’ debt was studied by the former CBIRC in March, which is interpreted as a signal to reduce the rate.
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Zheng Xinru, a researcher at Zhixin Investment, said, “The expected lowering will push the assumed interest rate to adapt to market changes, as the five-year bond yield now is 3.12% and the five-year deposit rate is set below 3%, both of which are quite low compared to historical data.”
China’s Insurance Sector Surpasses Expectations Says New Regulatory Body
Fang Guobing, another researcher at the Shanghai National Accounting Institute, said, “The declining assumed interest rate helps enhance insurance companies’ solvency in light of the current macroeconomic situation and the market interest rates. The new policies will further regulate insurance companies’ product design and marketing, preventing insurers from passing on high-risk investments to policyholders, he said.”
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