Global credit rating agency Fitch Ratings expects more stringent capital requirements on assets in light of the upcoming revised regulatory regime under the second phase of China Risk-Oriented Solvency System (C-ROSS).
The requirements would include higher capital charges on equity-related investments and an additional charge on alternative investments with non-transparent underlying assets, to make insurers more cautious in their investment decisions to reduce risks.
In a peer review of several Chinese life insurers, Fitch’s assessment includes:
Sustained Balance-Sheet Fundamentals: Chinese life insurers’ Insurer Financial Strength (IFS) Ratings are supported by their consistent balance-sheet strength in terms of their capital scores, as measured by the Fitch Ratings’ Prism model, comprehensive solvency ratios under the C-ROSS and financial-leverage ratios, which are commensurate with the ratings for most insurers.
High Investment Risk: Exposure to risky assets, such as stocks, long-term equities, equity-type investment funds, or properties, is high. The risky-asset ratios of most life insurers in this peer group are above the guidelines of their IFS Rating categories.
The insurers have been driven by low interest rates to increase their investment in equity-related assets to generate higher returns and provide longer asset durations.