China, Possible Solvency Risks And Insurance Industry

China will keep an eye on potential solvency risks as it expands the insurance industry after the country's two-day national financial work conference that closed on January 7 proposing to "vigorously nurture the insurance market" and "enhance regulations on solvency".

China's insurers' assets totaled some 5.9 trillion yuan (US$934.09 billion) last year, far less compared with the banks' 107 trillion yuan as of end-November, showing the insurance sector is still in its infancy.

Duo Guozhu, a professor specializing in insurance at the Capital University of Economics and Business, said that due to drawbacks concerning public awareness, insurance products, and fund-raising vehicles, China's insurance companies were a long way behind major international enterprises. Sometimes, insurance products could not even fulfill the need to protect those insured against risks of adverse events.

Emerging economies accounted for only 15 per cent of premiums while the US, Japan, and the UK together accounted for almost 47 per cent of world insurance, said the Association of British Insurers.

Xiang Junbo, chairman of the China Insurance Regulatory Commission (CIRC), told reporters that the financial work conference outlined some ground rules for the industry's further development including overseeing the role played by insurers in improving people's wellbeing.

This year the authorities will give policy priority to farming insurance, disaster insurance, and tax-deferred employment-based pensions, he added.

China's insurance business faced challenges over the past decade, especially in 2011. Life insurance and auto insurance growth slowed sharply while some insurers became less solvent.

The annual return rate was only 3.6 per cent, and some companies' solvency adequacy ratio dropped by 60 percentage points although the CIRC last year approved 66 insurers to raise funds of 90 billion yuan and 15 companies to auction 60 billion yuan of subordinated bonds.

"Enhancing supervision of insurance market solvency not only means a lot to the industry's risk control, but also benefits consumers", Duo said.

The regulator will encourage more insurance companies to widen financing channels including issuing convertible bonds, hybrid securities, and term bonds.