CHINA
New governance rules to get back to basics
CIRC will introduce new measures to reinforce insurance as the main mission of insurance companies in China. These measures are intended to improve their corporate governance and impose tougher punishment on violators while improving the overall accountability system of the insurance industry.
CIRC will also tighten control over insurance companies’ stock market activities and ban insurers from acquiring stakes in listed companies in concert with non-insurance parties.
Stock investment limits to be tightened
The level of investments by Chinese insurance companies in stock markets will be reduced. The ceiling on listed equities investment for insurers would be brought down to 30%, which was the prevailing cap before it was raised to 40% in July 2015 in a bid to prop up the then-plunging stock market.
Guidelines to strengthen asset-liability and risk management
Asset-liability and risk management operations of Chinese insurers would be further strengthened. New guidelines by CIRC in this regard would ensure that insurers’ investments provide long-term capital for the Chinese economy and curtail speculation in stocks. Supervision of insurance companies’ funding sources and shareholding structures would also be tightened.
Property insurance rules to be tightened
CIRC has introduced new rules to curb risks associated with property insurance products. New guidelines do not allow insurers to issue products to cover an investment risk that can make a profit as well as a loss, an event that leads to no real loss or where the event insured against will definitely occur. The premiums to be paid for a product will now be determined in line with the calculation of the actual risk and insurance liability.
CIRC had also proposed to slash the upper limit of a single shareholder’s stake in an insurance company to one-third, from 51% currently, to prevent any improper transfer of benefits.
New compliance system
CIRC has come up with new rules to improve insurers’ compliance management systems. The rules cover insurance firms and insurance asset management companies. They require the entities to establish a compliance management framework and a whistle blower system. The regulations take effect from 1 July this year.
Beijing-Tianjin-Hebei triangle
Guidelines for starting pilot programmes for integrated insurance operations in the Beijing-Tianjin-Hebei triangle have been eased. The trial scheme that began on 1 February this year will last for two years.
During this period, CIRC will encourage insurers, which have yet to establish branches in Beijing-Tianjin-Hebei, by giving them priority to set up such entities in Hebei, provided their operations would promote the coordinated development of the three regions. The move would ease the pressure brought by the large number of insurance companies clamouring to establish a base in Beijing.
Investors with “impure motives” to be kept out CIRC is raising the threshold for insurance licenses, so as to prevent investors with “impure motives” from entering the market.
The regulator is cutting such elements “off at the source” through establishing a list of qualifying criteria and raising the market entry barrier, so that “the business of insurers remains insurance”.
This would lead to a substantial fall in the number of new entrants in the Chinese insurance sector.
INDIA
Life insurance product rules to be reviewed
IRDAI has started a review of the regulations governing life insurance products. These were last updated in 2013.
Apart from taking into account the changing economic and market circumstances, the regulator will look into:
- insurance product flexibility and innovations to ensure simplicity, transparency and better value for money for policyholders especially in respect of products with a significant savings element;
- probability of mis-selling and protection of policyholders’ interest; and
- payment to intermediaries and innovative ways of distributing insurance products.
Order of preference for ceding business to reinsurers
IRDAI has set out the order of preference in which Indian insurers are to cede business to reinsurers. The order of preference for cessions would be:
- Indian reinsurer(s) having a minimum credit rating of BBB (from Standard & Poor’s) or equivalent rating of an international credit rating agency for immediately preceding three years; and thereafter, the branch office of a foreign reinsurer which shall maintain a minimum retention of 50% of the Indian reinsurance business (such branches are classified as Category 1);
- other Indian reinsurer(s) or the branch office of a foreign reinsurer which shall maintain a minimum retention of 30% of the Indian reinsurance business (such branches are classified as Category 2);
- the branch office of a foreign reinsurer set up in Special Economic Zone; and
- Indian insurers and overseas reinsurers.
IRDAI had granted the final approval (Certificate of Registration) in December 2016 to five foreign reinsurers to set up branches in India. IRDAI also gave final clearance for the establishment of the country’s first privately held local reinsurer, ITI Re. Currently, state-owned GIC Re is the only local reinsurer in India.
IPO proposal for life insurers shelved
IRDAI has shelved plans to make the listing of life insurers mandatory for the next two years. This step has been taken in the wake of fierce opposition from several players who argue that this was not known to them at the time they started the business.
To date ICICI Prudential Life Insurance remains the only listed insurer in the country. Meanwhile, four state-owned general insurers – New India Assurance, National Insurance, Oriental Insurance and United India Insurance and state-owned reinsurer GIC Re – are preparing for an IPO.
JAPAN
Mandatory auto liability insurance premium rates to be cut
Japan has decided to lower compulsory motor liability insurance premiums from April, the first such cut in nine years. The price is expected to be slashed by 7% on an average.
It has been felt that a cut in the premiums is appropriate because road accident rates have declined, thanks partly to the widespread use of vehicles equipped with automatic braking systems. The current two-year insurance premium is set at JPY27,840 (US$243) for private passenger cars and JPY26,370 for small vehicles.
PAKISTAN
Draft insurance Bill addresses microinsurance reforms
Pakistan’s Insurance Bill 2016 has set a minimum paid-up capital requirement of PKR50 million (US$480,000) for insurers which are registered exclusively to undertake microinsurance business. The Bill provides for a microinsurer to offer both life and non-life microinsurance services as may be prescribed by the SECP.
Other significant reforms proposed by the draft Bill include provisions for regulation of takaful and retakaful, regulation of local and foreign reinsurance business for enhancement of local capacity, regulation of reinsurance brokers, flexibility in the introduction of new intermediaries, as well as introduction of web aggregators and insurance repositories.
PHILIPPINES
Rules outlined for converting insurance mutual
The Insurance Commission (IC) has issued a new directive for the demutualisation of domestic mutual life insurance companies, guided by the principle of protecting existing policyholders. The entire demutualisation process would be transparent and policyholders and members would have to be informed in a timely manner with full disclosure.
THAILAND
Foreign shareholding and board limits eased
The Office of Insurance Commission (OIC) has relaxed the foreign shareholding and board limits for life and non-life insurance companies with a view to promote stability for the industry.
The new measures provide a licensed insurance company to have more than 49% (and up to 100%) foreign shareholding and for foreign directors to comprise more than half of the directors on its board, on fulfillment of the following conditions. This is a significant movement for the Thai insurance industry, especially on the life insurance side.
The conditions are that the insurance company has:
- a sufficient Capital Adequacy Ratio, at a percentage not less than what is prescribed by the Office of Insurance Commission (OIC); and
- a business operation plan for promoting stability for insurance companies or the overall insurance industry.
The proposed foreign shareholder must:
- be an insurance company, or a company engaged in a business that supports, or is related to, the insurance industry;
- have not less than 10 years of expertise and experience related to and supporting the insurance business;
- have financial stability and possess a credit rating, or have a parent company with a credit rating, of not less than “A,” which has been issued by a reputable credit rating agency with international network of business operations;
- have a clear direction in respect to its business operation policy and technology transfer plan, for the purpose of developing the company’s business operation system; and
- have sufficient financial capability to support and promote the stability of the company, or the overall insurance industry.
Once the permission is issued, among other prescribed requirements, the insurance company must maintain Total Capital Available of not less than THB1 billion (US$28.2 million) for a non-life insurer or THB4 billion for a life company at all times, and throughout its business operation period.