Event: Recently, the China Banking and Insurance Regulatory Commission issued the regulatory rules on solvency of insurance companies (II) (hereinafter referred to as the new rules), marking the formal completion of the second-generation solvency system phase II project of the insurance industry. The new regulations will be implemented from the first quarter of 2022, and the heavily affected insurance enterprises can apply for a transition period, which will be implemented no later than 2025.
Comments: the new regulations further improve the real capital measurement rules and emphasize the ability of core capital to absorb losses; According to many years of practical experience, the risk factors are fully calibrated; And use policy rules to guide the allocation of funds in the insurance industry. It is of great significance to prevent and resolve the risks of the insurance industry, maintain the safe and stable operation of the insurance market, promote the high-quality development of the insurance industry and protect the interests of insurance consumers.
I. sorting out the construction process of solvency system
The first version of the regulations on the solvency management of insurance companies was issued in 2008. In order to meet the needs of social and economic development, the former CIRC started the construction of "compensation second generation" in 2012. In 2015, 17 regulatory rules of the "second generation of compensation" were issued and began to enter the transitional trial operation stage. In 2017, the regulations on solvency management of insurance companies (Draft for comments) was issued, and the phase II project of "compensation generation II" was officially launched. In January 2021, on the basis of summing up and absorbing the practical experience in the construction and supervision of "compensation generation II", the new regulations on the solvency management of insurance companies were issued. On December 30, 2021, the China Banking and Insurance Regulatory Commission (CIRC) issued the regulatory rules on the solvency of insurance companies (II), marking the formal completion of the second-generation solvency system phase II project of insurance companies.
II. The new regulations further improve the measurement method of real capital
The new regulations adjusted some contents of real capital, optimized the composition of core capital, consolidated the quality of capital, further improved the measurement method of real capital, and helped to improve the ability of insurance institutions to deal with risks.
1. Investment real estate is uniformly measured according to the cost model, highlighting the principle of prudence. The new regulations require that investment real estate (including investment real estate held by insurance companies in the form of real right or through project companies) is uniformly measured according to the cost model, and the amount is taken as its recognized value.
(1) for the investment real estate measured in the fair value mode in the early stage, January 1, 2022 is taken as the initial measurement date, and its book value is taken as the initial cost of the cost mode. Among them, the acquisition cost is taken as the core Tier-1 capital and the assessed value-added is taken as the subsidiary Tier-1 capital.
(2) if there are signs of impairment of investment real estate: the impairment shall be accrued in full and in time. The impairment accrued and the depreciation accrued according to the cost model shall be apportioned in proportion between the acquisition cost and the evaluation value-added, and the core Tier-1 capital or subsidiary Tier-1 capital shall be reduced accordingly.
Compared with the fair value model, the advantage of the cost model is that it does not increase with the rise of the real estate market price, but the impairment is still fully accrued when the market goes down, and the capital measurement of the investment real estate of insurance enterprises is more cautious.
2. Emphasize the exogenous nature of capital
The new regulations specify that insurance companies shall not directly or indirectly provide funds or financing facilities for non endogenous capital providers in any form. (1) The issuer of a capital instrument shall not directly or indirectly provide financing for investors to purchase the instrument. (2) The investor does not obtain insurance funds through related party transactions, multi-layer nested financial products, increasing equity levels, etc. to purchase the instrument.
\u3000\u30003. Different types of insurance policies are classified into different levels of capital instruments
The definition of capital at all levels is more reasonable, which further strengthens the quality of core capital and enhances the ability of core capital to absorb losses.
(1) the future surplus of life insurance policies with different residual periods is classified into different levels of capital instruments. Under the "second generation" phase I rule, the future surplus of life insurance policies is classified as core tier 1 capital. The new regulations require insurance companies to include the future surplus of life insurance policies into different levels of capital instruments according to the remaining term of the policies.
(2) it is stipulated that the future surplus of life insurance policies included in the core capital shall not exceed 35% of the core capital. Insurance companies exceeding the 35% ceiling need to supplement core capital and dilute the proportion of future surplus of insurance policies. In addition, the future surplus scale of insurance policies allocated to core capital under the second phase of the new regulations will be reduced, and the difference between comprehensive solvency and core solvency will be more obvious.
(3) clarify the rules for the inclusion of long-term life insurance reinsurance contracts in capital. The actual capital increased due to the long-term life insurance reinsurance contract that can be terminated after three years shall be recognized and classified into different levels of capital instruments according to the type of contract.
4. Clarify the impairment rules of long-term equity investment
The new regulations clearly require insurance companies to fully evaluate the signs of possible impairment of long-term equity investments in joint ventures and associated enterprises, and timely and fully withdraw impairment reserves. In particular, it defines the impairment standard for long-term equity investment of listed companies: if the market price continues to be lower than the book value for more than one year or the proportion of the market price lower than the book value exceeds 50%, the impairment shall be accrued according to the difference between the book value and the market price (except for CSI 300 constituent shares with a dividend rate of more than 3% or a cash dividend payment rate of more than 10% in recent three years).
III. adjust the minimum capital measurement method
The phase II project of "compensation generation II" measures the minimum capital more reasonably and quantifies the risk more accurately. Rely on the improvement of the system to prevent and resolve the risks of the insurance industry.
\u3000\u30001. Adjust the correlation coefficient between risks
(1) under phase I rules, property insurance companies and life insurance companies adopt the same correlation coefficient matrix when measuring the minimum capital; The second issue of the new regulations provides separately applicable correlation coefficient matrices for property insurance and personal insurance.
(2) at the same time, according to the experience summary in the process of practice, the specific value of correlation coefficient among risks has also been adjusted in the "phase II" project.
\u3000\u30002. Strengthen interest rate risk control
The new regulations improve the measurement method of interest rate risk. (1) The measurement scope of interest rate risk is extended to all interest rate sensitive assets. (2) The asset range and evaluation curve for hedging interest rate risk have been optimized, and the cbcirc will timely adjust the discount rate curve for interest rate risk evaluation according to the changes of business attributes and market environment. On the one hand, it strengthened the ability of the CIRC to carry out risk management and control in a timely manner according to the economic situation; On the other hand, guide insurance companies to strengthen asset liability matching management.
On the whole, the interest rate risk of life insurance companies has decreased significantly under the second phase of the new regulations, and the minimum capital requirements for interest rate risk will be significantly reduced.
\u3000\u30003. "Full penetration, penetration to the end"
Aiming at the problems of multi-layer nesting in the use of insurance funds, the new regulations clearly defines the concepts of basic assets and non basic assets (the fundamental basis for the division is whether the minimum capital can be measured directly). For non basic assets, insurance companies are required to follow the principle of "wear as much as possible", measure the minimum capital of their market risk and credit risk, identify the final investment direction of funds, and accurately reflect the essence of their risk.
\u3000\u30004. Raise the basic factors of long-term equity investment
The new regulations comprehensively increased the basic factors of long-term equity investment. The basic factor of insurance subsidiaries and subsidiaries within the main business scope of insurance increased to 35%, that of listed joint ventures also increased to 35%, that of unlisted joint ventures increased to 41%, and that of other subsidiaries increased to 100%. The solvency of insurance companies with a large proportion of long-term equity investment will have a certain impact.
\u3000\u30005. New concentration risk measurement
Concentration risk refers to the risk that the insurance company encounters unexpected losses due to excessive concentration of risk exposure to the same counterparty or similar assets.
Insurance companies shall measure the capital with the lowest concentration risk, including the capital with the lowest concentration risk of counterparties, the capital with the lowest concentration risk of major assets and the capital with the lowest concentration risk of real estate, which will help guide insurance companies to diversify investment.
IV. give play to the guiding role of supervision
\u3000\u30001. Guide insurance companies to focus on their main business and improve their security level
(1) guide insurance companies to scientifically develop seriously ill products. In view of the significant increase in the risk of serious diseases, the disease trend risk is introduced (referring to the risk that the insurance company will suffer unexpected losses due to the fact that the actual experience of the disease deterioration trend is higher than expected).
(2) guide insurance companies to develop endowment insurance products. According to the long-term characteristics and risk reality of exclusive endowment insurance products, 10% discount is given to the minimum capital of longevity risk (the adverse scenario factor of longevity risk of exclusive commercial endowment insurance business is 0.9 times of the adverse factor of longevity risk).
(3) guide insurance companies to develop agricultural insurance. Set regulatory characteristic factors for agricultural insurance business and appropriately reduce its capital requirements.
(4) encourage the industry to explore new ways to integrate technology and business model. A 10% discount will be given to the minimum insurance risk capital of professional technology insurance companies.
\u3000\u30002. Guide the capital flow of insurance companies
(1) guide insurance funds to support the "30.60" double carbon goal. A 10% discount will be given to the minimum credit risk capital of green bonds invested by insurance companies.
(2) guide insurance institutions to control the scale of real estate investment. An insurance company shall not include the assessed value-added of investment real estate into its actual capital.
(3) guide insurance institutions to control the scale of long-term investment. For long-term equity investments (subsidiaries) with control, 100% full deduction of capital is implemented. At the same time, the risk factor of the minimum capital measurement of all long-term equity investments is greatly improved, and insurance companies are guided to focus on their main business to prevent the savage growth of capital in the financial field.
V. impact of the new regulations on insurance companies
\u3000\u30001. In the short term, the overall solvency adequacy ratio of the industry may decline, but the impact is controllable.
(1) it is expected that the core solvency adequacy ratio and comprehensive solvency adequacy ratio of insurance companies will be reduced to varying degrees. In terms of real capital, the adjustment of future earnings measurement rules of life insurance is expected to be the main reason. In addition, long-term equity investment and investment real estate also have an impact. In terms of minimum capital, the minimum capital required by interest rate risk of life insurance companies has decreased significantly, while credit risk, insurance risk and other credit risks have increased, forming a certain offset; The interest rate risk of property insurance companies has little impact, and the minimum capital requirements will be increased. It is estimated that some insurance companies need to supplement capital, and the dividend proportion may decline in 2022, but it will not have a lasting impact.
(2) the impact is generally controllable. Firstly, at present, the solvency adequacy ratio of head insurance companies remains at a high level (much higher than the regulatory lower limit of 100% comprehensive solvency adequacy ratio and 50% core solvency adequacy ratio). Secondly, some insurance companies with tight solvency still have sufficient adjustment time (the longest transition period can be 2025).
\u3000\u30002. In the long run, the successful completion of the second phase of the "compensation generation II" project has greatly optimized the risk-oriented solvency management system.
It will help the insurance industry further narrow the risk range and improve its ability to resist risks. At the same time, the new regulations help guide insurance enterprises to focus on their main business, improve their guarantee ability and support for the real economy. In the long run, it will help the insurance industry improve the quality and efficiency of development.
Investment suggestion: it is expected that the head insurance enterprises that pay attention to capital management, have high solvency adequacy ratio and strong risk control ability in the early stage will be less affected by the regulatory adjustment and have obvious comparative advantages. As of 2021h1, the core solvency adequacy ratio and comprehensive solvency adequacy ratio of industry leader Ping An Insurance (Group) Company Of China Ltd(601318) were 230.9% and 235.1% respectively, ranking in the forefront among listed insurance enterprises. It is recommended that Ping An Insurance (Group) Company Of China Ltd(601318) (a + H).
Risk tips: industry policy changes; Macro environmental change; The implementation of the policy was not as expected.
