CIRC eyeing revamp of insurance crisis fund

Proposed new rules to strengthen insurance sector’s emergency fund against liquidity problems

CIRC eyeing revamp of insurance crisis fund

Insurance News

By Gabriel Olano

China’s insurance regulator may revise the rules governing its insurance security fund, which supports insurers in case of crisis.

The China Insurance Regulatory Commission (CIRC) wants to increase the role of the insurance security fund in combating the risks faced by some insurers encountering liquidity problems, following the commission’s tightened regulations to curb systemic risk in the sector, according to industry experts cited by China Daily.

The revised rules will require all insurance companies to contribute a certain amount of capital to the fund, depending on their risk management capabilities. This means that some insurers may face higher capital requirements if their risk management capabilities are poor.

The fund’s purpose will also be expanded, allowing it to provide capital support to insurers encountering liquidity crises. The maximum liquidity support insurers can claim from the fund must not exceed 15% of the fund’s outstanding value in the previous year, Shanghai Securities News reported.

In the draft rules, the amount of capital support the fund would provide to risky insurance businesses such as universal life insurance was lowered. According to analysts, this is part of the CIRC’s encouragement of insurers to focus on protection-type policies instead of investment-focused products.

China established the insurance security fund in 1995 to protect insurance policyholders in case an insurance company became insolvent. As of July 2017, the fund’s value stood at RMB107.8 billion ($16.3 billion), with funds from the property and casualty insurance segment accounting for 63.7% of the total value.

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