China Banking and Insurance Regulatory Commission: Insurance companies rated as Class S should accelerate the reorganization and market exit process in accordance with the law.

Recently, the relevant department heads of the China Banking and Insurance Regulatory Commission answered questions from journalists regarding the "Regulation and Supervision Rating Methods for Insurance Companies". It was mentioned that for companies rated as level 5, they should develop risk disposal plans and may be required to restructure, be taken over, or exit the market according to the law. Companies rated as S level should accelerate restructuring and market exit processes according to the law. The "Rating Methods" stipulate that the regulatory rating work for the current year should be completed by the end of March of the following year. Considering the need for regulatory authorities to establish supporting systems and develop information systems, and for insurance companies to prepare, the completion time may be appropriately delayed in the initial implementation of the regulatory rating, to prudently advance the work. The original text is as follows: Relevant department heads of the China Banking and Insurance Regulatory Commission answer questions from journalists regarding the "Regulation and Supervision Rating Methods for Insurance Companies" Recently, the China Banking and Insurance Regulatory Commission issued the "Regulation and Supervision Rating Methods for Insurance Companies" (hereinafter referred to as the "Rating Methods"), and the relevant department heads answered questions from journalists on related issues. 1. What is the background and process of formulating the "Rating Methods"? The Central Financial Work Conference emphasized the need to "comprehensively strengthen institutional supervision, behavioral supervision, functional supervision, penetrative supervision, and continuous supervision". The "Opinions of the State Council on Strengthening Supervision, Preventing Risks, and Promoting High-Quality Development of the Insurance Industry" (State Council document [2024] No. 21) requires the "strengthening of tiered classification supervision and improvement of the insurance institution supervision rating system, strengthening the application of rating results". The China Banking and Insurance Regulatory Commission, based on the new situation of the development of the insurance industry, systematically summarized the current regulatory practice experience, and drafted the "Rating Methods". From June to August 2024, through various forms such as written correspondence and symposiums, and based on widespread solicitation and adoption of opinions from the regulatory system, insurance companies, and others, the "Rating Methods" was formulated. 2. Which types of insurance institutions are covered by the "Rating Methods"? The "Rating Methods" clearly state that regulatory authorities will conduct regulatory ratings for insurance companies established in the territory of China, which have been in business for a complete accounting year or more. This includes insurance groups (holding) companies, property insurance companies, life insurance companies, reinsurance companies, and foreign reinsurance company branches. For insurance companies newly established in the current year, regulatory authorities may conduct trial ratings according to the methods. For insurance companies undergoing restructuring, being taken over, or exiting the market, they will be directly rated as S level, and will no longer participate in the annual regulatory rating process. In addition, after the issuance of the "Rating Methods", in case of any inconsistency between the provisions on regulatory ratings in the "Regulation and Supervision Rating Methods for Life Insurance Companies" and these methods, these methods shall prevail. 3. What are the main procedures involved in the regulatory ratings of insurance companies by regulatory authorities? How is the annual schedule arranged? The "Rating Methods" clearly specify the procedures for the regulatory ratings of insurance companies, including: formulation of annual rating plans, information collection, initial ratings, follow-up ratings, auditing, feedback and analysis of results, dynamic adjustments, evaluation tracking, and improvement, etc. The "Rating Methods" stipulate that the regulatory rating work for the current year should be completed by the end of March of the following year. Considering the need for regulatory authorities to establish supporting systems and develop information systems, and for insurance companies to prepare, the completion time may be appropriately delayed in the initial implementation of the regulatory rating to prudently advance the work of regulatory ratings for insurance companies. 4. What are the rating elements included in the regulatory ratings of insurance companies? How is the company's comprehensive score obtained? The "Rating Methods" stipulate that the rating elements of the regulatory ratings of insurance companies include corporate governance, solvency, debt quality, asset quality (including asset-liability matching), information technology, risk management, operational status, consumer rights protection, and others. Based on the comprehensive evaluation of each rating element, the overall risk level of the company is determined to obtain the rating results, reflecting the true risk level. At the same time, considering that different types of companies have different operational and risk characteristics, differential rating elements are allowed to be set up. For company scores, the comprehensive score is obtained using a percentage scale and weighted method. During the regulatory rating process, regulatory authorities evaluate the rating indicators for each rating element according to the scoring criteria, obtain scores for individual elements, and then, based on the weights of different rating elements, calculate the company's comprehensive score. 5. How many categories are the regulatory ratings results of the "Rating Methods" divided into? What is the correspondence between the comprehensive score and the rating results? The "Rating Methods" stipulate that the regulatory rating results for different types of companies are classified as levels 1 to 5 and S level, with higher numbers indicating higher risks. A comprehensive score in the range of 90 points (inclusive) to 100 points is rated as level 1, 75 points (inclusive) to 90 points as level 2, 60 points (inclusive) to 75 points as level 3, 45 points (inclusive) to 60 points as level 4, and below 45 points as level 5. For level 2 companies, based on the scores, they are further subdivided into A, B, and C categories; level 3 and 4 companies are subdivided into A and B categories. Companies undergoing restructuring, being taken over, or exiting the market are directly classified as S level. Combining rating practices and regulatory actualities, the "Rating Methods" establish a "veto" mechanism, whereby if a company has significant individual risks, the rating results will be downgraded. For example, if an insurance company has severe deficiencies in corporate governance, inadequate solvency, or significant liquidity risks, the rating result should be level 4 or below. 6. How does the regulatory authority strengthen the application of rating results? Based on the principle of high risk and high intensity, regulatory authorities implement classified supervision of companies according to the rating results, supporting superior companies while restricting inferior ones. The rating results are used as important basis for implementing regulatory measures, market access in daily supervision, and on-site inspections. For example, for companies rated as level 1 and 2, the frequency of on-site inspections may be reduced, and support may be provided in areas such as institution and personnel access, product development, and business trials. For companies rated as level 3, measures may be taken such as increasing the frequency of non-site supervision analysis and requiring companies to submit risk management improvement plans depending on the circumstances. For companies rated as level 4, measures may be taken such as restricting dividend distribution to shareholders, restricting the establishment of branch offices, and limiting the scope of business. For companies rated as level 5, they should develop risk disposal plans, and may be required to restructure, be taken over, or exit the market according to the law. Companies rated as S level should accelerate restructuring and market exit according to the law. This article is excerpted from the official website of the China Banking and Insurance Regulatory Commission, GM. TEight Editor: Liu Jiayin.No tengo tiempo para eso ahora.