Source: Finance Federation Author: Xia Shuyuan

On September 10, the General Administration of Financial Supervision issued the “Notice of the State Administration of Financial Supervision on Optimizing the Solvency Supervision Standards of Insurance Companies” (hereinafter referred to as the “Notice”). The core content includes implementing differentiated capital supervision, optimizing capital measurement standards, and optimizing risk factors.

In terms of differentiated capital supervision, the “Notice” provides differentiated management for financial insurance companies of different sizes. When calculating minimum capital, medium-sized companies are calculated at 95%, and small companies are calculated at 90%.

In terms of optimizing capital measurement standards, the “Notice” adjusted the proportion of future surpluses included in core capital for insurance policies with a remaining term of 10 years or more, from no more than 35% to no more than 40%.

In terms of optimizing risk factors, for insurance companies investing in constituent stocks of the Shanghai and Shenzhen 300 Index, the risk factor was adjusted from 0.35 to 0.3; for investing in common stocks listed on the Science and Technology Innovation Board, the risk factor was adjusted from 0.45 to 0.4. For investments not penetrated in publicly raised infrastructure securities investment funds (REITS), the risk factor was adjusted from 0.6 to 0.5.

According to Zhang Xiaolei, executive vice president and secretary general of the China Association of Actuaries, the “Notice” has improved solvency supervision standards, strengthened differentiated and refined supervision of solvency, which is conducive to guiding insurance companies back to their roots, continuously enhancing the quality and efficiency of the insurance industry in serving the real economy, and achieving high-quality development.

Differentiated supervision: adjust the minimum capital requirements of insurance companies according to asset size

Compared with developed countries, China's insurance industry started relatively late, there are structural differences in the insurance market, and there are large differences in the level of development of different companies.

In order to promote the balanced development of insurance companies of different sizes and raise the level of specialization in supervision, the “Notice” adjusted the minimum capital of insurance companies in China according to the size of assets.

Specifically, property insurance and reinsurance companies with total assets between 10 billion yuan and 200 billion yuan, and personal insurance companies with total assets between 50 billion yuan and 500 billion yuan are given a 5% capital discount, and the solvency adequacy ratio is calculated based on 95% of their minimum capital.

It is worth noting that for a long time, small and medium-sized property companies have been restricted by capital, their solvency is under high pressure, and their development has been restricted. This time, the “Notice” clearly grants preferential policies to small and medium-sized insurance companies and reduces their minimum capital requirements.

Among them, property insurance and reinsurance companies with total assets of less than 10 billion yuan and personal insurance companies with total assets of less than 50 billion yuan are given a 10% capital discount, and the solvency adequacy ratio is calculated based on 90% of their minimum capital.

Zhang Qingsong, head of finance and chief investment officer of Anhua Insurance, said that the new regulations provide differentiated management for financial insurance companies of different sizes. When calculating the minimum capital, the calculation is based on 95% for medium-sized companies and 90% for small companies, which will greatly enhance the solvency of small and medium-sized financial insurance companies, promote the active development of small and medium-sized companies, return to the source of insurance, and provide better insurance risk protection. With the introduction of this policy, it is expected that the solvency adequacy ratio of small and medium-sized financial insurance companies will increase by 13-18 percentage points.

“As far as Anwar Insurance is concerned, the introduction of this policy will strongly enhance the company's service capabilities in agricultural risk protection and push the company to step up efforts in agricultural insurance innovation and service,” Zhang Qingsong said.

Zhou Ming, professor of the Department of Risk Management and Actuarial Computing at the School of Statistics at Renmin University of China, said, “The introduction of this policy fully reflects the differentiation and refinement of China's insurance solvency supervision, supports the growth of small and medium-sized insurance companies, guides the insurance business back to the roots of protection, and serves the real economy and the people's development concept.”

Optimizing capital measurement standards: the upper limit of the proportion of future surpluses included in core capital for insurance policies with a term of 10 years or more remaining was raised to 40%

Among them, section 3 of the “Notice” adjusted the proportion of future surpluses included in core capital for insurance policies with a remaining term of 10 years or more, from no more than 35% to no more than 40%.

According to industry insiders, this increase in ratio will help personal insurance companies raise the level of core solvency and help insurance institutions develop long-term insurance products.

Wang Junhui, chief investment officer of China Life Insurance (Group), said, “This adjustment will help life insurance companies pay more attention to the development of pension, long-term life insurance, etc., and promote insurance companies to participate in the construction of China's pension system.”

According to management training, chief actuary of Sino-Italian Life Insurance, this regulation will encourage the life insurance industry to develop long-term business, provide long-term protection for customers and companies, and better reflect the insurance industry's ability to provide long-term protection that is different from other industries.

Second, it helps to encourage the industry to pay more attention to insured business development. In particular, in the current situation where insured and high-value businesses are sluggish, encouraging the development of high-value insured businesses will help encourage the insurance industry to return to its roots, with insurance surnames being insured.

Thirdly, adjusting the share of future surpluses in core capital will help encourage insurance companies to improve the creative ability of endogenous capital through their own efforts, balance business development and capital needs, reduce the capital costs of insurance companies' development, increase the appeal of the insurance industry to investors, and promote the healthy development of the insurance industry.

Finally, there are many other rules governing core capital and ancillary capital in the “Insurance Company Solvency Supervision Rule No. 1: Actual Capital”, which can balance the relationship between core capital and ancillary capital very well and ensure the quality of actual capital, especially core capital.

Give companies sufficient capital discounts for reserve accrual, and encourage prudent calculation of reserves

Specifically, for property insurance companies, the “Notice” sets characteristic coefficients for premium risk and minimum reserve risk capital, grants sufficient corporate capital discounts on reserves, encourages companies to carefully calculate reserves, and implement a long-term sound business philosophy.

If the property insurance company calculated at the end of the most recent quarter the arithmetic average of the backward deviation ratio of unmatured and unresolved claims reserves after reinsurance for all non-life insurance businesses at the end of the last two fiscal years is less than or equal to -5%, the minimum risk capital for premiums and reserves will be calculated at 95%.

According to Yu Ze, CEO of People's Insurance Insurance, the above optimization measures will guide insurance companies to further improve the level of refined management of reserves, help guide the insurance industry back to the roots of protection, give full play to risk protection functions, effectively serve the real economy, help the industry establish a correct business development concept, and implement the national development strategy.

Optimizing risk factors: further freeing up space for insurance companies' equity asset allocation

In order to guide insurance companies to further enhance their ability to serve the real economy and better serve national strategic development and scientific and technological innovation, the “Notice” not only adjusts the capital measurement standards for some insurance companies' businesses, but also optimizes the risk factors in the minimum capital requirement for solvency, increases the core capital of insurance companies to a certain extent, thereby indirectly freeing up space for equity assets.

Among them, the “Notice” further optimizes the range of assets that hedge interest rate risk, clearly includes some non-standard assets in the minimum capital measurement range for interest rate risk, and continuously guides insurance companies to improve their ability to match and manage assets and liabilities.

For example, as proposed in Articles 6 and 7 of the “Notice”, for insurance companies investing in constituent stocks of the Shanghai and Shenzhen 300 Index, the risk factor was adjusted from 0.35 to 0.3; for investing in common stocks listed on the Science and Technology Innovation Board, the risk factor was adjusted from 0.45 to 0.4. For investments not penetrated in publicly raised infrastructure securities investment funds (REITS), the risk factor was adjusted from 0.6 to 0.5.

Yu Ze said, “Taking the constituent stocks of the Shanghai and Shenzhen 300 Index invested by our company as an example, the minimum capital will drop by about 1.6 billion yuan, which will help us further increase our investment in the above areas and continue to serve the development of the real economy and scientific and technological innovation.”

Zhang Qingsong said that from an investment perspective, implementing a long-term assessment will increase the investment's tolerance for risk fluctuations, and it is possible to stick to long-term value investment. The “Notice” optimizes risk factors, reduces risk factors including Shanghai and Shenzhen 300, Science and Technology Innovation Board stocks, REITS, and some shares, reflects value investment and support for scientific and technological innovation, and helps insurance companies increase the allocation of equity related assets without increasing capital consumption.

At the same time, insurance companies will more strongly support the real economy, and at the same time share the dividends brought by the development of listed companies from the country's high-quality development process, and further strengthen their own capital.

Zhou Ming said, “For a long time, in the face of a downward trend in risk-free interest rates, increasing the allocation of equity assets has always been an inevitable choice for the use of insurance funds. The introduction of this policy has a direct effect on increasing the allocation of equity assets among insurance funds, especially increasing support for scientific and technological innovation strategies.”

Strengthen the long-term assessment of investment income, and the entry of insurance funds into the market is expected to accelerate

The investment value of China's A-share market continues to be highlighted, providing a rare strategic historical opportunity for the allocation of insurance funds. The investment scale of insurance funds in the domestic A-share market is close to 3 trillion yuan, which is an important ballast stone and stabilizer in China's capital market.

Since July 24, relevant departments have continuously introduced support policies focusing on “revitalizing the capital market and boosting investor confidence.”

In order to encourage long-term value investment, section 10 of the “Notice” clearly ensures that the average return on investment and comprehensive return on investment for the past 3 years should be publicly disclosed in the quarterly reports of insurance companies, so as to strengthen the long-term assessment of investment income.

Wang Junhui, chief investment officer of China Life Insurance (Group), said that the issuance of the “Notice” is an innovative practice based on the industry's own development rules to better serve the real economy and better support the development of the capital market. It is believed that the timely introduction of this policy will play an important role in optimizing the asset allocation structure of insurance funds and at the same time actively supporting the stable development of the capital market.

On the one hand, an active capital market is of great significance for building on a new stage of development and constructing a new development pattern. “Currently, the capital market is affected by multiple internal and external factors and fluctuates greatly, but the long-term positive trend of the Chinese economy has not changed. Various policies to support the capital market have been introduced intensively, and it is in a critical period from quantitative to qualitative change. We have full confidence in this,” Wang Junhui said.

As a major state-owned insurance institution, China Life Insurance has long taken it as its mission to implement the central government's strategic deployment. It is firmly optimistic about the long-term investment value of the Chinese capital market. Amid the sharp fluctuations in the capital market this year, it continues to increase the weight and scale of equity asset allocation and maintain net purchases.

edit/lambor