Administrative Provisions on the Solvency of Insurance Companies
Administrative Provisions on the Solvency of Insurance Companies
Administrative Provisions on the Solvency of Insurance Companies
Order of the China Banking and Insurance Regulatory Commission [2021] No.1
January 15, 2021
The Administrative Provisions on the Solvency of Insurance Companies, which were deliberated and adopted at the ninth executive meeting of the China Banking and Insurance Regulatory Commission in 2020 on June 11, 2020, are hereby promulgated and shall come into force as of March 1, 2021.
Guo Shuqing, Chairman
Administrative Provisions on the Solvency of Insurance Companies
Chapter I General Provisions
Article 1 These Provisions are formulated in accordance with the Insurance Law of the People's Republic of China with a view to strengthening the regulation of the solvency of insurance companies, effectively preventing and controlling insurance market risks, and safeguarding the interests of policyholders.
Article 2 For the purpose of these Provisions, "insurance companies" shall mean insurance companies and branches of foreign insurance companies established within the territory of China in accordance with the law to conduct commercial insurance business.
Article 3 For the purpose of these Provisions, "solvency" shall mean the ability of an insurance company to fulfill its indemnification obligation to policyholders.
Article 4 An insurance company shall establish and improve a solvency management system, effectively identify and manage all kinds of risks, continuously improve its solvency risk management, monitor its solvency status in a timely manner, prepare and submit solvency reports, disclose solvency-related information, and carry out good capital planning to ensure that its solvency is up to standard.
Article 5 The China Banking and Insurance Regulatory Commission (“CBIRC”) shall take a risk-based approach, formulate specific rules on solvency regulation that combine quantitative capital requirements, qualitative regulatory requirements and the market discipline mechanism, comprehensively evaluate, supervise and inspect the solvency margin ratio, integrated risk and risk management capability of insurance companies, and take regulatory measures in accordance with the law.
Article 6 Solvency regulation indicators include:
1. core solvency margin ratio, i.e., the ratio of core capital to minimum capital, which measures the adequacy of high-quality capital of an insurance company;
2. comprehensive solvency margin ratio, i.e., the ratio of actual capital to minimum capital, which measures the overall capital adequacy of an insurance company; and
3. integrated risk rating (“IRR”), i.e., an evaluation of the integrated solvency risk of an insurance company, which measures the overall solvency risk of an insurance company.
Core capital refers to the capital that can absorb losses of an insurance company having the status of both going concern and bankruptcy liquidation.
Actual capital refers to the financial resources that can absorb losses of an insurance company having the status of going concern or bankruptcy liquidation.
Minimum capital refers to the amount of capital that, for prudential regulation purposes, an insurance company is required to have, thus enabling it to have appropriate financial resources to deal with the adverse effects of various risks that can be quantified as capital requirements on solvency.
Specific regulatory rules such as measurement criteria for core capital, actual capital, and minimum capital shall be separately formulated by the CBIRC.
Article 7 The provision for countercyclical additional capital of insurance companies and additional capital of systemically important insurers shall be separately stipulated.
Article 8 An insurance company that meets all of the following three regulatory requirements shall be a company with solvency up to standard:
1. the core solvency margin ratio is not less than 50%;
2. the comprehensive solvency margin ratio is not less than 100%; and
3. the IRR is B or above.
If any of the above requirements are not met, it is a company whose solvency is not up to standard.
Chapter II Solvency Management of Insurance Companies
Article 9 The board of directors and senior management of an insurance company shall be responsible for the solvency management of the company; the senior management of a branch of a foreign insurance company whose head office is not in China shall be responsible for the solvency management of the company.
Article 10 An insurance company shall establish and improve an organizational structure for solvency risk management to clarify the responsibilities and powers of the board of directors and related specialized committees, senior management and relevant departments, and designate a senior executive as the chief risk officer to be responsible for solvency risk management.
An insurance company shall, through employment agreements, written undertakings, etc., make it clear that the company has the right to recover the compensation paid to the directors and senior executives who have caused solvency risks and losses to the company.
For a branch of a foreign insurance company without a board of directors and related specialized committees set up, the senior management shall perform responsibilities related to solvency risk management.
Article 11 An insurance company shall establish a complete solvency risk management system and mechanism, and strengthen the management of inherent risks such as insurance risk, market risk, credit risk, operational risk, strategic risk, reputation risk, and liquidity risk, so as to effectively reduce the company's control risk.
Inherent risk refers to the objective solvency-related risk that is necessarily present in the operation and management activities of insurance companies under existing normal material and technical conditions and mode of production organization of the insurance industry.
Control risk refers to the solvency-related risk as a result of failure to promptly identify and control the inherent risks due to the imperfect or ineffective internal management and control of insurance companies.
Article 12 An insurance company shall, in accordance with the specific rules on the regulation of the solvency of insurance companies, assess its solvency adequacy on a regular basis, calculate its core solvency margin ratio and comprehensive solvency margin ratio, submit solvency reports as required, and be responsible for the authenticity, completeness and compliance thereof.
Article 13 An insurance company shall conduct solvency stress tests in accordance with the regulations of the CBIRC, provide forecasts and early warnings related to solvency status and trends in different scenarios over a period of time in the future, and take appropriate precautions.
Article 14 An insurance company shall establish a solvency data management system, clarify the division of responsibilities, improve management mechanisms, strengthen data management and control, and ensure that all solvency data are authentic, accurate, and complete.
Article 15 An insurance company shall prepare its three-year capital plan on an annual rolling basis, and submit the plan to the CBIRC and its local office after approval by the company's board of directors. An insurance company shall establish a management decision-making mechanism that links development strategies, business planning, the establishment of organizations, product design and the use of funds to capital planning, improve its ability to replenish endogenous capital by optimizing the business structure and asset structure, and replenish capital using appropriate external capital instruments so as to maintain adequate solvency.
Chapter III Market Discipline and Supervision
Article 16 An insurance company shall, in accordance with the specific rules on the regulation of the solvency of insurance companies formulated by the CBIRC, disclose a summary of its quarterly solvency report on a quarterly basis, and disclose and explain its solvency information to insurance consumers, shareholders, potential investors, creditors and other stakeholders in the relevant links of daily operations.
A listed insurance company shall also comply with the relevant regulations on information disclosure of the securities regulator.
Article 17 The CBIRC shall publish the following solvency information on a regular basis:
1. the overall solvency status of the insurance industry;
2. solvency regulation; and
3. other solvency information to be published as deemed necessary by the CBIRC.
Article 18 The accounting firm engaged by an insurance company shall, in accordance with the requirements of laws and regulations, independently and objectively deliver audit opinions on the solvency report of the insurance company.
Actuarial consulting agencies, credit rating agencies, asset appraisal agencies, law firms and other intermediaries shall, when conducting business in the insurance industry, deliver opinions or issue reports in accordance with the requirements of laws, regulations and practice standards.
Article 19 Insurance consumers, news media, industry analysts, research institutions, etc. may report non-compliance of insurance companies with solvency regulations to the CBIRC.
Chapter IV Regulatory Assessment and Inspection
Article 20 The CBIRC and its local offices shall analyze and assess the risk profile of insurance companies through solvency risk management capability assessment, IRR and other regulatory tools.
Article 21 The CBIRC and its local offices shall conduct regulatory assessments of the solvency risk management capability of insurance companies on a regular basis to identify their control risk.
Insurance companies shall measure the capital requirement for control risk based on the assessment results, and include it in their minimum capital.
Article 22 The CBIRC and its local offices shall evaluate the overall risk of insurance companies by assessing their operational risk, strategic risk, reputation risk and liquidity risk and in the light of their core solvency margin ratio and comprehensive solvency margin ratio, assign an IRR of A, B, C, or D to them and take differentiated regulatory measures accordingly.
The specific evaluation criteria and procedures for IRR shall be separately formulated by the CBIRC.
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Order of the China Banking and Insurance Regulatory Commission [2021] No.1
January 15, 2021
The Administrative Provisions on the Solvency of Insurance Companies, which were deliberated and adopted at the ninth executive meeting of the China Banking and Insurance Regulatory Commission in 2020 on June 11, 2020, are hereby promulgated and shall come into force as of March 1, 2021.
Guo Shuqing, Chairman
Administrative Provisions on the Solvency of Insurance Companies
Chapter I General Provisions
Article 1 These Provisions are formulated in accordance with the Insurance Law of the People's Republic of China with a view to strengthening the regulation of the solvency of insurance companies, effectively preventing and controlling insurance market risks, and safeguarding the interests of policyholders.
Article 2 For the purpose of these Provisions, "insurance companies" shall mean insurance companies and branches of foreign insurance companies established within the territory of China in accordance with the law to conduct commercial insurance business.
Article 3 For the purpose of these Provisions, "solvency" shall mean the ability of an insurance company to fulfill its indemnification obligation to policyholders.
Article 4 An insurance company shall establish and improve a solvency management system, effectively identify and manage all kinds of risks, continuously improve its solvency risk management, monitor its solvency status in a timely manner, prepare and submit solvency reports, disclose solvency-related information, and carry out good capital planning to ensure that its solvency is up to standard.
Article 5 The China Banking and Insurance Regulatory Commission (“CBIRC”) shall take a risk-based approach, formulate specific rules on solvency regulation that combine quantitative capital requirements, qualitative regulatory requirements and the market discipline mechanism, comprehensively evaluate, supervise and inspect the solvency margin ratio, integrated risk and risk management capability of insurance companies, and take regulatory measures in accordance with the law.
Article 6 Solvency regulation indicators include:
1. core solvency margin ratio, i.e., the ratio of core capital to minimum capital, which measures the adequacy of high-quality capital of an insurance company;
2. comprehensive solvency margin ratio, i.e., the ratio of actual capital to minimum capital, which measures the overall capital adequacy of an insurance company; and
3. integrated risk rating (“IRR”), i.e., an evaluation of the integrated solvency risk of an insurance company, which measures the overall solvency risk of an insurance company.
Core capital refers to the capital that can absorb losses of an insurance company having the status of both going concern and bankruptcy liquidation.
Actual capital refers to the financial resources that can absorb losses of an insurance company having the status of going concern or bankruptcy liquidation.
Minimum capital refers to the amount of capital that, for prudential regulation purposes, an insurance company is required to have, thus enabling it to have appropriate financial resources to deal with the adverse effects of various risks that can be quantified as capital requirements on solvency.
Specific regulatory rules such as measurement criteria for core capital, actual capital, and minimum capital shall be separately formulated by the CBIRC.
Article 7 The provision for countercyclical additional capital of insurance companies and additional capital of systemically important insurers shall be separately stipulated.
Article 8 An insurance company that meets all of the following three regulatory requirements shall be a company with solvency up to standard:
1. the core solvency margin ratio is not less than 50%;
2. the comprehensive solvency margin ratio is not less than 100%; and
3. the IRR is B or above.
If any of the above requirements are not met, it is a company whose solvency is not up to standard.
Chapter II Solvency Management of Insurance Companies
Article 9 The board of directors and senior management of an insurance company shall be responsible for the solvency management of the company; the senior management of a branch of a foreign insurance company whose head office is not in China shall be responsible for the solvency management of the company.
Article 10 An insurance company shall establish and improve an organizational structure for solvency risk management to clarify the responsibilities and powers of the board of directors and related specialized committees, senior management and relevant departments, and designate a senior executive as the chief risk officer to be responsible for solvency risk management.
An insurance company shall, through employment agreements, written undertakings, etc., make it clear that the company has the right to recover the compensation paid to the directors and senior executives who have caused solvency risks and losses to the company.
For a branch of a foreign insurance company without a board of directors and related specialized committees set up, the senior management shall perform responsibilities related to solvency risk management.
Article 11 An insurance company shall establish a complete solvency risk management system and mechanism, and strengthen the management of inherent risks such as insurance risk, market risk, credit risk, operational risk, strategic risk, reputation risk, and liquidity risk, so as to effectively reduce the company's control risk.
Inherent risk refers to the objective solvency-related risk that is necessarily present in the operation and management activities of insurance companies under existing normal material and technical conditions and mode of production organization of the insurance industry.
Control risk refers to the solvency-related risk as a result of failure to promptly identify and control the inherent risks due to the imperfect or ineffective internal management and control of insurance companies.
Article 12 An insurance company shall, in accordance with the specific rules on the regulation of the solvency of insurance companies, assess its solvency adequacy on a regular basis, calculate its core solvency margin ratio and comprehensive solvency margin ratio, submit solvency reports as required, and be responsible for the authenticity, completeness and compliance thereof.
Article 13 An insurance company shall conduct solvency stress tests in accordance with the regulations of the CBIRC, provide forecasts and early warnings related to solvency status and trends in different scenarios over a period of time in the future, and take appropriate precautions.
Article 14 An insurance company shall establish a solvency data management system, clarify the division of responsibilities, improve management mechanisms, strengthen data management and control, and ensure that all solvency data are authentic, accurate, and complete.
Article 15 An insurance company shall prepare its three-year capital plan on an annual rolling basis, and submit the plan to the CBIRC and its local office after approval by the company's board of directors. An insurance company shall establish a management decision-making mechanism that links development strategies, business planning, the establishment of organizations, product design and the use of funds to capital planning, improve its ability to replenish endogenous capital by optimizing the business structure and asset structure, and replenish capital using appropriate external capital instruments so as to maintain adequate solvency.
Chapter III Market Discipline and Supervision
Article 16 An insurance company shall, in accordance with the specific rules on the regulation of the solvency of insurance companies formulated by the CBIRC, disclose a summary of its quarterly solvency report on a quarterly basis, and disclose and explain its solvency information to insurance consumers, shareholders, potential investors, creditors and other stakeholders in the relevant links of daily operations.
A listed insurance company shall also comply with the relevant regulations on information disclosure of the securities regulator.
Article 17 The CBIRC shall publish the following solvency information on a regular basis:
1. the overall solvency status of the insurance industry;
2. solvency regulation; and
3. other solvency information to be published as deemed necessary by the CBIRC.
Article 18 The accounting firm engaged by an insurance company shall, in accordance with the requirements of laws and regulations, independently and objectively deliver audit opinions on the solvency report of the insurance company.
Actuarial consulting agencies, credit rating agencies, asset appraisal agencies, law firms and other intermediaries shall, when conducting business in the insurance industry, deliver opinions or issue reports in accordance with the requirements of laws, regulations and practice standards.
Article 19 Insurance consumers, news media, industry analysts, research institutions, etc. may report non-compliance of insurance companies with solvency regulations to the CBIRC.
Chapter IV Regulatory Assessment and Inspection
Article 20 The CBIRC and its local offices shall analyze and assess the risk profile of insurance companies through solvency risk management capability assessment, IRR and other regulatory tools.
Article 21 The CBIRC and its local offices shall conduct regulatory assessments of the solvency risk management capability of insurance companies on a regular basis to identify their control risk.
Insurance companies shall measure the capital requirement for control risk based on the assessment results, and include it in their minimum capital.
Article 22 The CBIRC and its local offices shall evaluate the overall risk of insurance companies by assessing their operational risk, strategic risk, reputation risk and liquidity risk and in the light of their core solvency margin ratio and comprehensive solvency margin ratio, assign an IRR of A, B, C, or D to them and take differentiated regulatory measures accordingly.
The specific evaluation criteria and procedures for IRR shall be separately formulated by the CBIRC.
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