China reveals framework for systemically important insurers

China reveals framework for systemically important insurers | Insurance Business Asia

Insurance News

China reveals framework for systemically important insurers

Evaluation indicators also unveiled

Insurance News

By
Kenneth Araullo

The People’s Bank of China (PBOC) and the National Administration of Financial Regulation (NAFR) have jointly issued new guidelines that outline the criteria for identifying systemically important insurance companies in the country.

The newly introduced guidelines establish an evaluation and identification mechanism for systemically important insurance companies. These companies are defined as financial institutions whose inability to continue operations could negatively impact the financial system and the real economy due to their significant scale, high complexity, strong correlation with other financial institutions, and the provision of services that are difficult to replace.

The PBOC and NAFR will calculate weighted average scores for each insurance company every two years, using data from participating insurance companies. Insurance companies with a score of 1,000 or more will be recognised as systemically important insurance companies and will be listed publicly.

The guidelines also allow regulators to designate insurance companies with lower scores as systemically important based on qualitative auxiliary information, including factors like business expansion speed, business concentration, and corporate governance.

Systemically important insurance companies will be subject to additional regulatory reporting, information disclosure, and other requirements as deemed necessary by the PBOC and NAFR to ensure financial stability and prevent systemic risks.

Key dimensions for judging systemically important insurers

The assessment process, as outlined in the guidelines, will include China’s top ten insurance group companies, personal insurance companies, property insurance companies, and reinsurance companies, based on asset size. These assessments will occur every two years, with additional institutions identified as systemically important insurance companies in the previous year also included.

In cases where two or more insurance companies form an insurance group company, the insurance group company will be the entity assessed for these purposes, using consolidated financial data. A total of 13 evaluation indicators will be used in the assessments, covering four key dimensions:

Scale (20% weight) – based on total assets and total revenue
Relevance (30% weight) – based on assets and liabilities formed through transactions with other financial institutions
Asset Realisation (30% weight) – based on how easily or quickly assets can be converted into liquid assets
Substitutability (20% weight) – based on the number of branches, policyholders, compensation expenditures, and premium income

These guidelines are scheduled to come into effect from Jan. 1, 2024, with the first list of systemically important insurance companies expected to be released around August 2024.

What are your thoughts on this story? Please feel free to share your comments below.