A.M. Best has released a new briefing that explores the impact of China’s second-generation solvency regime, the China Risk Oriented Solvency System (C-ROSS), on insurance companies operating in the country.
C-ROSS, which was implemented by the China Insurance Regulatory Commission (CIRC) in February 2015, is effective immediately; however, a transitional period will allow insurance companies to follow the current solvency regime while simultaneously submitting a solvency report based on the new requirements.
The briefing states that direct insurers will likely need to revise their reinsurance programmes, or panel of insurers, in order to better manage their solvency requirement arising from reinsurance credit risk under C-ROSS.
The credit risk charge on reinsurance recoverables is expected to bring significant change to the reinsurance marketplace.
A.M. Best has stated that it expects more reinsurance placements to be diverted to onshore reinsurance companies, with a corresponding reduction of offshore reinsurance.
According to a recent report from Aon Benfield, the rest of the Asia Pacific region is also strengthening its solvency regulations.
As well as China, markets such as Hong Kong and Sri Lanka are moving towards risk-based capital (RBC) while developed markets are bringing their existing RBC to a new level, like Singapore’s introduction of RBC 2 and Japan moving towards an economic value-based solvency regime.
Sifang Zhang, head of Aon Benfield Analytics’s Rating Agency Advisory team for the Asia Pacific, commented: “This region presents many opportunities due to currently low insurance penetration rates, fast-growing economies, an active infrastructure building and the forthcoming [Association of South East Asian Nations] Economic Community.”
“Regulatory regimes are evolving quickly and [RBC] regimes are already implemented in half of the countries. The report’s standard structure will enable easy comparisons to be made when insurers are making strategic decisions.”