China's insurance regulator has set up a committee to supervise insurers' asset liability management and is drafting additional rules governing this aspect, in the latest moves in a crackdown on insurers' risky activities as Beijing seeks to prevent financial risks.
The CIRC said that the new set of regulations will be put into effect in the beginning of 2018, reported Reuters citing an online statement by the regulator.
The insurance sector is facing increasing difficulties in matching assets and liabilities due to "major conflicts" between highly volatile investment income and fixed liability cost, said the statement.
In particular, some insurance companies that lack effective corporate governance have adopted aggressive operational and investment strategies, causing a huge risk exposure and liquidity issue, the CIRC said.
"Asset liability management is a fundamental ability and the core competitiveness for insurance companies, especially for life insurance companies," the CIRC said
On the asset side, the regulator asks insurers to increase duration management, cost benefit management and risk budgeting to prevent risks caused by a mismatch of assets and liabilities.
On the liability side, the CIRC will tighten scrutiny over mid- and short-term insurance products, which usually refer to so-called universal life insurance policies, the regulator said.
For insurers that poorly manage asset-liability matching, the CIRC will restrict their investment volumes and sales of short-term products as well as increase solvency requirements, it said.
Well-managed insurers will be rewarded with pilot policies for fund investment and new product issues, it said.
In recent years, several insurers have taken huge stakes in listed companies, or snapped up real estate assets at home and abroad, funded by issuing high-yield, short-term universal life insurance and other investment products.