HONG KONG, Jan 5 (Bernama-BUSINESS WIRE) — AM Best expects the revised quantitative and qualitative requirements under the China Risk-Oriented Solvency System Phase II (C-ROSS Phase II) to have significant impacts on the various insurance market segments.
The Best’s Commentary, “Changes to China’s Solvency Framework to be Credit Positive for Insurance Market,” states that this recent revision to China’s solvency regime should allow for greater transparency in risks and capital quality. Most insurance companies are likely to observe various degrees of decline immediately in solvency ratios, depending on their product mix, capital structure, and aggressiveness investment strategy. Under the updated solvency regime, capital recognition has been tightened and the industry is expected to see a drop in admitted capital in solvency calculations. Specifically, the regulator has changed the recognition of real estate held for investment purposes from fair value to value at cost, while insurers are required to make adequate provisions for impairment and apply timely and appropriate reductions to their capital. Another key update is the mandatory application of a “look-through” approach in calculating minimum capital to support investment risk.
