Recently, the China Banking and Insurance Regulatory Commission issued the regulatory rules on the solvency of insurance companies (II) (hereinafter referred to as “rule II”), marking the successful completion of the second generation phase II project. In order to fully understand the impact of rule II on the insurance industry and the main body of the company, the reporter of Shanghai Securities News exclusively interviewed Liu Xin, general manager of the investment management department of sunshine insurance group, one of China’s seven insurance groups, and interpreted it from the perspective of investment.
Shanghai Securities News: rule II has revised some regulatory standards on the asset side. Including significantly increasing the risk factors of long-term equity investment and 100% full deduction of capital for long-term equity investment (subsidiaries) with control; It is stipulated that insurance companies shall determine the recognized value of investment real estate by cost measurement mode. What impact will these amendments have on the asset side of insurance companies?
Liu Xin: rule II has comprehensively calibrated and updated the risk factors of various investments. Some factors are higher than the current requirements, especially the risk factors related to long-term equity investment and real estate, which objectively reflect the real risk status of various assets and adapt to the changes of market environment. At the same time, the risk factors of long-term equity investment of joint ventures and associated enterprises are consistent with the basic factors of main board shares and unlisted shares respectively according to whether they are listed or not, mainly to avoid arbitrage.
On the whole, rule II emphasizes that the asset side allocation strategy should match the capital strength, investment ability and liability side of the insurance company. On the one hand, by guiding insurance companies to invest prudently and focusing on the main insurance industry and industries closely related to insurance business, we can promote the high-quality development of insurance industry; On the other hand, by improving the capital recognition standards, including no longer recognizing the value-added part of the fair value evaluation of investment real estate, and strengthening the impairment requirements of long-term equity investment, insurance companies are guided to continuously consolidate the capital quality.
The changes of these rules come down in one continuous line with the adjustment orientation of insurance fund supervision rules in recent years. On the one hand, adhere to the bottom line thinking of strictly controlling risks, reasonably evaluate risks and withdraw capital; On the other hand, while ensuring the matching between the asset side and the liability side, excellent companies are given more autonomy and flexibility, so that they can give full play to the long-term investment advantages of insurance funds within their own risk tolerance, return to the source of service insurance guarantee business through equity investment, improve the strategic allocation value, and provide more capital funds for the real economy Encourage the development of high-quality enterprises.
For investment opportunities and future investment layout, Liu Xin believes that long-term equity investment generally has the characteristics of long-term and robustness, especially under the new accounting standards, it may help to reduce the volatility of financial indicators of insurance companies. In the context of accelerating the construction of a new development pattern, insurance funds should give full play to the advantages of long-term funds, and carry out long-term equity investment on the premise of fully assessing income, risk and capital consumption. We can mainly focus on three opportunities.
First, areas with long investment cycle and stable financial return, such as infrastructure investment in the process of new urbanization and regional coordinated development; Second, areas with long investment time but positive significance for social development and good financial returns, such as green investment and healthy pension investment; Third, the fields related to technological innovation and high-quality development, which can contribute to economic transformation and continuous improvement of labor productivity in the medium and long term, such as “specialized and new” small and medium-sized enterprises focusing on market segments, focusing on main businesses, strong innovation ability and good growth.
Shanghai Securities News: rule II improves the measurement method of interest rate risk, including optimizing the asset range of interest rate risk, uniformly adopting the 60 day moving average treasury bond yield curve and adverse scenarios for asset and liability evaluation. What impact will this have on the investment side of insurance companies?
Liu Xin: under Rule II, asset liability matching returns to the principle of cash flow matching. Investment assets that can provide stable cash flow can hedge the impact of interest rate fluctuations on the liability side. Compared with the past, held to maturity bonds, debt investment plans, collective fund trusts and other varieties have been added. This will guide insurance companies to pay more attention to the risk nature of investment assets, reduce the impact of accounting measurement, and improve the accuracy and scientificity of interest rate risk measurement.
Under Rule II, the asset liability interest rate risk assessment curve is unified, and the 60 day moving average treasury bond yield curve is used as the benchmark interest rate curve. Under the reality that the interest rate center has been moving down for a long time and the interest rate volatility has been increasing, this is conducive to insurance companies to more timely and accurately evaluate the real interest rate risk level and asset liability matching at the current time, so as to take measures to control the necessary interest rate risk in a more timely manner.
Shanghai Securities News: rule II improves the definition of capital and adds exogenous requirements; The future surplus of the insurance policy is grouped according to the remaining period of the insurance policy, and the loss absorption capacity is distinguished by discounting the capital return rate, which is included in the capital at all levels respectively. What impact will this have on the solvency of insurance companies?
Liu Xin: under the current rules, the future profits of life insurance contracts have entered the actual capital and become the core capital. From the perspective of prudence, the future profits of life insurance contracts do not fully comply with the definition and attributes of core capital, and should not be fully included in core capital.
Under Rule II, only long-term life insurance policies with a residual term of 10 years or more can contribute core capital; The longer the remaining period and the greater the profit contribution, the more obvious the supplementary effect of the insurance policy on the company’s core capital. Therefore, on the one hand, the core adequacy ratio of most life insurance companies will decline significantly, and the difference between the industry core solvency adequacy ratio and the comprehensive solvency adequacy ratio will increase; On the other hand, this will encourage life insurance companies to pay more attention to the long-term guarantee source of insurance business, guide the industry to adjust its product strategy, further strengthen the development of long-term life insurance business with high profit contribution, and improve the core solvency adequacy ratio of the company.
Shanghai Securities News: rule II requires insurance companies to identify the final investment direction of insurance funds in accordance with the principle of “full penetration and penetration to the end”. How are these requirements related to the new asset management regulations and relevant international rules?
Liu Xin: the new asset management regulations require penetrating supervision of asset management business and clearly put forward the restriction of “two-tier nesting”. Rule II is designed to penetrate the specific operating rules, that is, the minimum capital is measured based on the actual investment of the underlying assets and the number of transaction structure layers. The more layers, the higher the capital occupation, and more accurately reflect the essence of risk through quantification. Rule II is consistent with the new regulations on asset management in principle and objectives, which is to more accurately identify the essence of underlying risks and prevent amplification of leverage, variation risk, idling funds or bypass investment to avoid supervision. Rule II and the new asset management rules and rule II are mutually connected and complementary in terms of regulatory content and management means. The former controls from the back-end capital requirements and the latter restricts from the front-end investment mode.
From the perspective of capital occupation, penetration measurement does not encourage complex structures. For each additional transaction structure, the corresponding additional capital occupation (10% of the capital requirements of the underlying assets) is increased. For assets that cannot be penetrated or measured accurately due to complex nested relationship or untimely and insufficient acquisition of investment information, the insurance company shall withdraw according to the highest factor (0.6), resulting in a significant increase in capital occupation. This will not only restrict insurance companies from participating in complex transaction structures from the capital side, but also guide insurance companies to actively pay attention to underlying asset risks and improve risk management level and risk resilience.
For non basic assets, due to the high capital occupation of impenetrable assets, the allocation power of insurance companies for some assets with complex structure and high difficulty in obtaining bottom information (such as PE fund and master Fund) may be weakened, or higher information disclosure requirements will be put forward to managers. For assets that can be exempted from penetration and whose minimum capital requirements reflect the risk dispersion effect of underlying assets, such as portfolio insurance asset management products, asset support plans, bank financial products, etc., the active allocation power of insurance companies may be enhanced. At the same time, insurance companies may require all underlying assets to invest in the underlying assets with clear risks, and pay attention to the risk dispersion to ensure that the standards of exemption penetration are met.
Compared with the international penetration rules, the innovation of penetration measurement in rule II is mainly reflected in: first, the regulation is based on the “principle + rule” clause, and detailed provisions are made in the five aspects of measurement principles, measurement methods, exemption from penetration, non penetration and partial penetration, which is more instructive and operable to achieve penetration to the end; Second, the assets covered by penetration measurement are more comprehensive, risk-oriented, comprehensively sort out the asset forms and risk characteristics, define the basic assets and non basic assets, and realize the necessary wear; Third, based on the multi round penetration test of the whole industry and the whole asset caliber, the penetration rules are revised to conform to the actual situation of the industry; Fourth, on the basis of quantitative capital requirements, carry out information disclosure to ensure the transparency and trace of penetrating information; Fifth, dynamic supervision, using prudent professional judgment and stable classification methods, scientifically and reasonably identify and classify new investment varieties in time to ensure the timeliness and accuracy of the minimum capital.
Shanghai Securities News: what impact will penetration requirements have on insurance companies in practice?
Liu Xin: rule II emphasizes risk orientation, improves the pertinence and sensitivity of regulatory rules to risks, further expands the risk coverage, improves the scientificity of risk measurement and the effectiveness of risk management, and requires the solvency management system to reflect the risk situation of insurance institutions more timely and accurately, which is of great significance to the risk prevention of insurance companies.
Penetration measurement puts forward higher standards for insurance companies in investment management, risk management, data governance, personnel quality, system construction, process mechanism and other aspects, requiring insurance companies to strengthen main responsibility and implement fine management on the asset side. In practical operation, penetration measurement does face many challenges, including difficulties in obtaining underlying asset information, difficulties in accurately evaluating underlying asset risk, large workload increase due to the large number of investment varieties, insufficient timeliness and accuracy of penetration information acquisition, etc.
Therefore, insurance companies need to improve the construction of non basic asset penetration management system. At the practical level, they should improve the post investment management system according to the accuracy and granularity requirements of penetration data, clarify the information disclosure requirements and data transmission process for product managers, and establish a strict, standardized, comprehensive and detailed investment risk management and data governance system. In terms of working mechanism, insurance companies need to reshape the solvency access, measurement and reporting process according to rule II, clarify the division of responsibilities of each link and department, optimize the process efficiency and ensure the timeliness of reporting. Rule II has high requirements on the quality of penetration data, large amount of underlying asset data, cumbersome and time-consuming manual processing. It is necessary to do a good job in system docking, build underlying data logic, strengthen verification and verification mechanism, and try our best to ensure the authenticity of data.
From the past several industry tests, the capital with the lowest market risk and credit risk has changed greatly. First, implement comprehensive and thorough penetration measurement, and impose additional capital punishment on assets with complex investment structure, unclear transaction and unclear bottom layer; Second, after the risk factors of various assets are calibrated, they are more improved than the current rules, especially the factors such as long-term stock investment, equity and real estate; Third, increase concentration risk measurement, which has a great impact on some companies with concentrated investment.
(Shanghai Securities News · China Securities Network)
