China's solvency margin ratio recovers after three-year slump

China's solvency margin ratio recovers after three-year slump | Insurance Business Asia

China's solvency margin ratio recovers after three-year slump

The Chinese insurance sector’s comprehensive solvency margin ratio for the first quarter of 2019 rose by 3.3 percentage points from the previous quarter, marking the first improvement in the metric in three years.

The metric, which measures insurers’ ability to pay their liabilities, improved as a result of Beijing’s aggressive campaign to reduce risks in the insurance industry, following several years of risky behaviour by many insurers, Caixin Global reported.

This was revealed by the China Banking and Insurance Regulatory Commission’s (CBIRC) following its solvency supervision committee’s analysis of the solvency and risk situation in the insurance industry in the first quarter of 2019. The meeting was chaired by Zhou Liang, vice chairman of the financial regulator.

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As of March 31, 2019, the comprehensive solvency adequacy ratio of 178 insurance companies was 245.3%, up 3.3 percentage points from the previous quarter, the report said. Meanwhile, the core solvency adequacy ratio was 233.4%, up 2.8 percentage points from the previous quarter.

Property and casualty (P&C) insurers had a comprehensive solvency adequacy ratio of 271.8%, while life insurers and reinsurers had 238.3% and 335.7%, respectively. Compared to the previous quarter, P&C’s ratio decreased by 2.2 percentage points, while life insurers’ improved by 3.3 percentage points, and reinsurers’ by a whopping 52.7 percentage points.

Since the revision of the solvency system in 2016, the industry’s comprehensive solvency ratio has trended downward. However, it is now showing signs of stabilising, or even recovery.

The CBIRC requires insurers to keep their solvency ratios above 100%, and dipping below that threshold will incur penalties.