The "boots" of the revolutionary regulatory rating system have landed, how to tell the "new story" of life insurance companies?

Recently, the boots of the five-level classification supervision system for life insurance companies have been officially launched.

In order to strengthen the institutional supervision and classified supervision of life insurance companies, rationally allocate regulatory resources, improve the quality and efficiency of supervision, and promote the high-quality development of life insurance companies, on March 18, the State Administration of Financial Supervision issued the Measures for the Supervision and Rating of Life Insurance Companies.

Specifically, according to the Rating Measures, the comprehensive risk level of life insurance companies is divided into 1-5 and S-level, and the higher the value, the greater the risk of the life insurance company, and the higher the degree of regulatory attention. In addition to increasing the frequency and depth of off-site supervision and on-site inspections, measures such as ordering an increase in capital, restricting the establishment of additional branches, ordering the cessation of accepting new business, and restricting the distribution of dividends to shareholders will also be taken in accordance with the law.

It can be seen that this means that the regulatory rating of insurance companies will be directly tied to the performance of corporate governance and business operations, and the higher the comprehensive risk level level, the narrower the road may become.

Recently, we connected with Wang Yuhui, a senior actuarial lecturer in the live broadcast, and Mr. Wang discussed with us in the live broadcast what are the new changes in the regulatory rating regulations for life insurance companies, and what impact will it bring to the industry, and at the same time, he also gave a very pertinent view on the impact of the "insurance breaking the rigid redemption" on the consumer side, which has attracted much attention in the market, and the main content of this article is also from the live broadcast.

1

The new policy of hierarchical management was issued,

What are the new features and industry implications?

In fact, from the perspective of the entire market, the implementation of the new regulations on the regulatory rating of life insurance companies is inseparable from the current development environment of the entire life insurance industry. On the one hand, as we all know, the risk of the life insurance market environment is relatively high, especially under the high-intensity supervision at the national level, and this trend of strict supervision will continue in the medium and long term; For example, the rating also highlights inclusive green finance, which is a plus for insurance companies.

So, compared with the past regulatory ideas and regulatory methods, what are the important changes in the rating method, and what are the provisions that we need to focus on? Mr. Wang believes that the rating method has the following four characteristics.

First, comprehensiveness. The rating method integrates a series of requirements previously imposed by the regulator on all insurance companies, including corporate governance, C-ROSS, ASSET AND LIABILITY MANAGEMENT, USE OF FUNDS, INTERNAL CONTROL OF RELATED PARTY TRANSACTIONS, MANAGEMENT OF SALES BEHAVIOR, CONSUMER RIGHTS PROTECTION AND MANY OTHER ASPECTS. How to do a good job in the use of funds and the management of assets and liabilities is the key to preventing the risk of interest margin loss of insurance companies.

Second, refinement. Dismantling the rating method, there are more than 100 contents, and there are as many as 105 indicators involved, and there is also an Excel sheet issued by the supporting company, requiring all insurance companies to complete and submit all the data related to the 105 indicators for the whole year of 2023 and the first quarter of this year in April. These multi-dimensional data are actually calculated by refining the basic indicators and adjusting indicators, so that the 105 indicators are very finely dismantled through the six dimensions mentioned above.

Third, timeliness can also be described as high-frequency or relatively strict monitoring. There are two important actions in the rating method, one is dynamic monitoring, not less than once a month monitoring frequency, has far exceeded all previous policy measures, the ultimate goal is very clear, that is, to implement high-intensity supervision under high risk, to achieve early detection, early warning, early monitoring, early treatment. The second is risk warning, when there is an abnormal change in the monthly indicators of the insurance company, the risk warning will be triggered, which must be explained, detected in time, early treatment and early intervention, and reduce the frequency of risk occurrence.

In addition, the rating method also has the characteristics of combining off-site and on-site, off-site is mainly the regulatory department on some of the daily regulatory statements of the insurance company, dynamic monitoring, and on-site supervision is that there will be corresponding supervisors to carry out some on-site surprise inspections on the insurance company.

Fourth, reasonableness. Although the rating method superficially involves 105 indicators in six dimensions, it is a more reasonable comprehensive evaluation and calculation of the scores of six evaluation dimensions, including corporate governance, business operation, capital utilization, asset and liability management, solvency management and other aspects, by reducing, selecting and refining the indicators of various indicators in various regulatory documents in the past.

For the issuance and implementation of this document, the person in charge of the State Administration of Financial Supervision has said that this will be conducive to the implementation of the regulatory orientation of "high-risk and high-intensity supervision", the rational allocation of institutional regulatory resources, the real implementation of classified regulatory requirements, and the formation of a differentiated development of life insurance companies in the competitive pattern. The focus of market concern is what impact the introduction of the rating scheme will have on life insurance companies and business development.

Mr. Wang introduced that for life insurance companies, the introduction of the policy will indeed play a "Matthew effect" for the industry powerhouse, because of its own strong foundation, it has a good grasp of all aspects of control measures, and can continue to develop better. However, for those insurance companies that are not developing well, they will be restricted everywhere under the strong supervision of the policy, which may lead to a great impact on their business development process in the future.

2

In the new era of hierarchical management,

What risks do life insurers need to address?

As mentioned above, the scoring criteria of this rating are very comprehensive, involving six evaluation dimensions: corporate governance, business operation, capital utilization, asset and liability management, solvency management, and other aspects.

The importance of these six dimensions to the steady development of the insurance company is self-evident, as far as the current situation is concerned, which risk indicators have caused greater pressure on the insurance company, and what effective measures should be taken to alleviate it?

One is. In terms of indicators for the use of funds. As we all know, the proportion of capital use in the insurance company's indicators has always been high, accounting for about 22% at present, and the factors affecting this indicator cover market risk, credit risk, investment income and so on. In the current environment of intensifying market challenges, objectively and fairly, there is no very good "medicine" to control the risks in this area in a timely manner.

There is no doubt that in the past two years, the volatility of China's stock market has taught many insurance companies a good "lesson", if they do a good job in risk management, especially in the use of funds, the actual situation may not be too bad, will be greatly improved.

For example, in order to cope with the risk challenge, all departments of the insurance company have certain rules and regulations and corresponding measures for risk management, the first is the need to improve the risk management system, the entire market risk, credit risk, liquidity risk, and final operation risk, must be very serious attention to it, strict management.

In fact, the rating method also provides an opportunity for the industry, that is, to open up all the front, middle and back offices of the relevant departments involved in the insurance company, and no longer treat the key points of risk separately, but connect them in series in the entire actual operation, so as to better implement the risk system. Next, the insurance company can also adopt some advanced risk management technology to establish a compliance review system or risk management system, which is by no means just superficial, but requires the insurance company to be able to truly implement these systems and technologies and continue to operate and operate.

Second, on the asset and liability management side, major insurance companies have to face the downside risk of interest rate fluctuations, and this downward trend may continue for a long time.

In this context, it is very difficult for the fixed income assets and equity assets allocated by insurance companies to have high returns. In addition, the cost of the insurance company has been locked in the cost of the policy, and in the past two or three years, the sales of traditional savings products such as increased whole life have been maintained at a high level, although the regulatory level has lowered the interest rate of the product, but it is still high compared with bank deposits, and with the continuous decline of deposit interest rates, it is also foreseeable that if the interest rate of traditional insurance products this year continues to be lowered, there may still be a relatively large risk. On the other hand, the reduction of interest rates on participating insurance and universal insurance products can also highlight the strong competitiveness of traditional products.

Therefore, from the above dimensions, whether it is the executives of insurance companies, or all practitioners, will be more cautious about this matter, how to do a good job in the interconnection of assets and liabilities, has become a topic that many insurance companies must study, of course, some insurance companies are indeed starting to make changes. For example, the back-end actuarial and financial investment departments involved in the sales department are brought together to discuss how to effectively allocate assets and reasonably control all relevant points of assets and liabilities in the case of better sales on the liability side.

In addition, from a long-term perspective, using differentiated competitiveness to resist risks is also a way to break the game, but it is not easy to really do this. It is true that we are pleased to see that some representative small and medium-sized insurance companies have performed very well in differentiated product term life insurance, and some small and medium-sized enterprises have embarked on their own innovative development path, and to a certain extent, they have truly done solid insurance protection, rather than simply doing more savings business that is more similar to bank deposits.

3

"Insurance breaks the rigid redemption" has aroused heated discussions, how to understand it?

Recently, a piece of news is like a pebble thrown into a calm lake, causing layers of ripples and arousing widespread attention in the market, with the content of "The insurance industry may break the rigid payment".

It is reported that the source of the news is the cover article published in the latest issue of Caixin Weekly - "Disposal of Problem Insurance Enterprises". This article lays out the risk events in the insurance industry in recent years, including those that have been disposed of, and those that are waiting to be taken over. At the same time, it is mentioned that the draft Insurance Law, which is in the process of being revised, has added a new proposition: "If the assets of the insurance company to be taken over are insufficient to pay off all debts, or if the insurance business is transferred in accordance with the law, the insurance contract may be reasonably modified with the approval of the State Council." ”

The essence of buying insurance is to seek certainty from uncertainty. However, if the principle of rigid payment is broken, whether the core value of insurance can be maintained has aroused widespread concern and discussion in the market.

Mr. Wang believes that in the current market environment, it is indeed difficult for the insurance industry to stand alone, and "breaking the rigid payment" may be a major trend.

First, the current "insurance redemption" is supported by a legal basis, and its legal basis comes from the Insurance Law, which stipulates that when an insurance company goes bankrupt, the life insurance contract and liability reserve held by it must be transferred to other insurance companies that operate life insurance business, so as to safeguard the legitimate rights and interests of the insured and the beneficiary to the greatest extent.

However, when the regulatory authorities revised the "Measures for the Management of Insurance Security Fund" last year, there were already certain clues in "breaking the rigid payment", which very vaguely or vaguely mentioned that "for the capital-based business, the compensation of the insurance security fund will be separately agreed", which is more of reference and implementation significance for the revision of the Insurance Law this year.

Second, whether the rigid payment principle of insurance products will be broken depends on the current risk of insurance companies on the asset side and liability side. From this perspective, the trend of breaking the rigid exchange is inevitable, but it will not necessarily occur in the worst form, because the current reserves of various insurance companies are carefully implemented in the solvency provisioning method, so we should also maintain a more optimistic attitude.

Of course, many insurance consumers are starting to get worried. They are concerned about whether their insurance contracts will be affected if they become insolvent in the future, and whether this means a break in rigid payments, which in turn may lead to real economic losses? These issues will obviously affect consumer demand and confidence.

From the perspective of the domestic market, we have all experienced the real estate from a once brilliant and suddenly turned into a downward cycle, and also experienced the ups and downs of the stock market, but nothing can always be unilateral upward, there will be a certain period of time to go down, and then up again over time, and repeatedly.

Therefore, breaking the rigid exchange itself is an inevitable trend, and it is not necessarily a bad thing. On the one hand, some insurance companies have the courage to take responsibility, which may attract more markets. On the other hand, after receiving a certain amount of education, our customers have actually grown to a certain extent, although they may not be willing to bear the corresponding losses, but this is indeed the way for our entire financial system and economic and social development to be in a period of deep adjustment.

After all, China's insurance penetration rate is currently very low, which means a huge potential market. In 2021, the average Chinese held about 1.17 policies, which is 1/4 of the United States; the average premium per capita is 400 US dollars, which is 1/10 of the United States and 1/2 of the world average. With the low penetration rate and the "dividend" of an aging population, the development of China's insurance industry is still a part of China's modernization. In the long run, a series of regulatory actions will allow insurance companies to unload the burden of history, travel lightly, and return to their origins, which is good, and we should be full of confidence in the development of the industry.