China’s top insurance regulator is considering revising the rules for the country’s insurance security fund, which will allow the fund to provide necessary liquidity support to insurers in case of crisis.
Industry experts said the move highlighted the regulatory intention to boost the role of the insurance security fund in preventing industry risks as some insurers may be exposed to liquidity problems as the authorities have substantially tightened regulations to curb systemic financial risks.
The revised rules will 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 will likely face higher capital requirement if they have poorer risk management performance, business newspaper Shanghai Securities News reported on Dec 12.
The new rules will also expand the usage of the fund, allowing it to offer capital support to insurers if they face liquidity crisis. The maximum amount of capital insurers can obtain from the fund as liquidity support cannot 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 for the draft revision. It did not reply to China Daily’s queries on the matter on Dec 12.
“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,” said Zhu Junsheng, a financial researcher at the Development Research Center of the State Council.
The draft rules also lowered the amount of capital support to insurers’ risky business such as universal insurance, a type of investment-focused life policy, which Zhu said reflected the regulatory intention to encourage insurers to focus on protection products instead of investment-driven 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) by the end of July, with property and casualty insurance funds accounting for 63.7 percent of the overall fund.