context: Deeming high-quality development vital to regime sustainability, the CPC aspires to shore up financial security. Most recently, the National Administration of Financial Regulation launched revised management measures for capital guarantee funds of insurance companies. The following commentary details its impact on securing insurance management and reputation.
The revised measures improve oversight of insurers’ capital guarantee deposits, reports China Media Group, raising insurers’ management standards in this area.
In recent years, PRC banking assets have continued to expand, notes an National Administration of Financial Regulation official, yet previous rules set the minimum net assets for depository banks too low.
Wang Xiangnan 王向楠 Chinese Academy of Social Sciences Insurance and Economic Development Research Centre deputy director notes that the new rules
- emphasise security, stronger constraints and quicker responses
- stricter compliance help
- in normal times: insurers retain and attract higher-quality investors
- in stress: strengthen the safety cushion behind policies, stabilise insurers
The amount of each capital guarantee deposit must not be less than C¥20 million. For insurers whose capital increase is under C¥100 million, they must set aside a deposit equal to 20 percent of the increase in a single tranche.
Wang Guojun 王国军 University of International Business and Economics professor notes that this measure would improve insurers’ capital management, industry reputation and consumer confidence
- capital guarantee deposits
- key source of funds for repaying debts during liquidation
- security directly affects the ability to honour policies
- new rules: push insurers to build stronger internal capital management
- force smaller firms to optimise capital structures
- safeguard industry reputation and raise public confidence
The measures also require insurers to place deposits with at least two commercial banks. Wang says that this helps
- related-party transfers and regulatory arbitrage
- reduce risks of interest transfer and evade oversight
Revised rules add ‘large-denomination certificates of deposit’ as an approved form of deposit. Wang notes that this arrangement both reflects actual practice and brings income benefits
- such certificates
- have become a mainstream corporate deposit tool
- inclusion makes the system better aligned with business operations
- yields typically higher than regular deposits of the same term
- enable insurances to enhance the value of guaranteed deposits while ensuring safety
Although the measures mainly focus on capital guarantee deposit regulation, Wang notes that the regulation
- both
- upholds the bottom line of risk control
- steers insurance capital toward market circulation
- does not directly affect the scale of insurers’ investable assets
- encourage them to optimise capital
- attract new investors
- reinforce liability resilience
Such an approach helps create an environment of ‘long-term funds for long-term investment and steady market entry’, which benefits the capital market.