The China Banking and Insurance Regulatory Commission released the "Insurance Company Regulatory Rating Method".

On January 17, the China Banking and Insurance Regulatory Commission issued the "Regulations on the Supervision and Rating of Insurance Companies". The "Regulations" adhere to the following drafting principles: first, adhere to risk-based principles. Second, based on the actual situation in China. Third, unify the rating framework. Fourth, strengthen the application of results. Regulatory authorities will, based on the results of the supervision and rating of insurance companies, scientifically formulate regulatory plans, allocate regulatory resources reasonably, support superior companies and restrict inferior ones, and use the rating results as important basis for taking regulatory measures and market access and on-site inspections in daily supervision. The original text is as follows: The China Banking and Insurance Regulatory Commission issued the "Regulations on the Supervision and Rating of Insurance Companies" Recently, the China Banking and Insurance Regulatory Commission issued the "Regulations on the Supervision and Rating of Insurance Companies" (hereinafter referred to as the "Regulations"), which will take effect from March 1, 2025. The "Regulations" is a unified supervision and rating system for insurance companies developed by the China Banking and Insurance Regulatory Commission in accordance with the relevant deployment and requirements of the State Council on strengthening supervision, preventing risks, and promoting the high-quality development of the insurance industry (State Council [2024] No. 21). The regulatory authorities will conduct supervision and rating of insurance companies and implement classification supervision in accordance with the "Regulations", which is of great significance for reasonable allocation of regulatory resources, enhancing regulatory effectiveness, and strengthening risk prevention and control in the insurance industry. The "Regulations" adhere to the following drafting principles: first, adhere to risk-based principles. Regulatory rating is the main basis for measuring the risk level of insurance companies. The "Regulations" require comprehensive consideration of risks in various aspects of company operations, such as corporate governance, solvency, quality of liabilities, quality of assets (including asset-liability matching), information technology, risk management, operating conditions, and consumer rights protection. The overall risk level is determined according to the size of the overall risk, which fully reflects the actual risk level. Second, based on the actual situation in China. The "Regulations" focus on strengthening the "five major regulations", fully considering the actual development of the insurance industry and the new situations faced by regulation in China, summarizing the operational experience of the current relevant systems comprehensively, and effectively enhancing the scientific nature of the regulatory rating system. Third, unify the rating framework. For insurance groups (holding) companies, property insurance companies, life insurance companies, and reinsurance companies, the "Regulations" establish a unified supervisory rating framework, using consistent rating methods, procedures, and classification levels, effectively enhancing the uniformity and standardization of the rating work. Fourth, strengthen the application of results. Regulatory authorities will, based on the results of the supervision and rating of insurance companies, scientifically formulate regulatory plans, allocate regulatory resources reasonably, support superior companies and restrict inferior ones, and use the rating results as an important basis for taking regulatory measures and market access and on-site inspections in daily supervision. Next, the China Banking and Insurance Regulatory Commission will do a good job in implementing the "Regulations", formulate specific evaluation standards based on the operational characteristics and risk characteristics of different types of insurance companies, improve the regulatory rating information system, strengthen the rigid constraints of the ratings, and promote the high-quality development of the insurance industry. Regulations on the Supervision and Rating of Insurance Companies Chapter 1 General Provisions Article 1 In order to strengthen the classification and supervision of insurance companies, implement the principle of high risk/high intensity for high-risk and low risk/low intensity for low-risk, allocate regulatory resources reasonably, and promote the high-quality development of the insurance industry, these Regulations are formulated in accordance with the "Insurance Law of the People's Republic of China" and the "Regulations on the Management of Insurance Companies" and other laws and regulations. Article 2 These Regulations apply to insurance companies that have been in operation for a complete accounting year, and regulatory agencies may conduct trial rating on newly established insurance companies in the current year in accordance with these Regulations. The term "insurance company" as used in these Regulations refers to the legal entities of insurance groups (holding) companies, property insurance companies, life insurance companies, reinsurance companies established in accordance with the law within China and branches of foreign insurance companies. The term "regulatory authority" as used in these Regulations refers to the China Banking and Insurance Regulatory Commission (hereinafter referred to as the China Banking and Insurance Regulatory Commission) and its dispatched agencies. Article 3 Supervisory ratings of insurance companies refer to the comprehensive evaluation by regulatory agencies of the overall risk situation of insurance companies based on off-site supervision and on-site inspections, determine the regulatory rating results, and implement classification supervision. Article 4 The China Banking and Insurance Regulatory Commission organizes and coordinates the supervision and rating of insurance companies, standardizes evaluation standards, unifies operating processes, and strengthens the application of results. The China Banking and Insurance Regulatory Commission and its dispatched agencies carry out the supervision and rating of insurance companies in accordance with these Regulations. Chapter 2 Rating Elements and Rating Methods Article 5 The rating elements for the supervision of insurance companies include corporate governance, solvency, quality of liabilities, quality of assets (including asset-liability matching), information technology, risk management, operating conditions, consumer rights protection, and others. Insurance groups (holding) companies may adjust the rating element levels of quality of liabilities, quality of assets (including asset-liability matching), and consumer rights protection as appropriate; reinsurance companies may not set rating elements for consumer rights protection. Each rating element consists of quantitative and qualitative indicators, and the sum of the weights of the rating elements is 100%. Among them, the weights of corporate governance and solvency are not less than 15%, the weights of quality of liabilities, quality of assets (including asset-liability matching), information technology, risk management are not less than 10%, and the weights of operating conditions and consumer rights protection are not less than 5%. The China Banking and Insurance Regulatory Commission may set differentiated rating elements with weights not exceeding 15% based on the business and risk characteristics of different types of insurance companies. Article 6 Supervision rating of insurance companies adopts the following methods: (1) Rating element scores. Regulatory personnel assess and determine the scores of rating indicators according to the evaluation criteria, combined with professional judgment. The rating element score is the sum of the scores of each rating indicator. (2) Comprehensive rating score. The rating element scores are weighted and summarized according to the weights to obtain the comprehensive rating score. (3) Supervisory rating results. Based on the comprehensive rating score, the preliminary rating level is determined, and the supervisory rating results are determined in conjunction with regulatory rating adjustment factors, reassessment, and review circumstances. Article 7 The supervisory rating results of insurance companies are divided into levels 1-5 and S. Among them, level 2 is subdivided into A, B, C, three levels, level 3 and level 4 are subdivided into A, B, two levels. The higher the numerical value of the rating results 1-5, the greater the risk and the stronger the regulatory intensity. Insurance companies that are undergoing restructuring, taken over, or implementing market exits, etc., and are directly classified as level S by the regulatory authority after being identified, will not participate in the supervision rating process in the current year. The comprehensive rating score is below 90...From 0 to 100 points is considered Level 1; from 75 to 90 points is Level 2, with 85 to 90 points as Level 2A, 80 to 85 points as Level 2B, and 75 to 80 points as Level 2C; from 60 to 75 points is Level 3, with 70 to 75 points as Level 3A, and 60 to 70 points as Level 3B; from 45 to 60 points is Level 4, with 50 to 60 points as Level 4A, and 45 to 50 points as Level 4B; below 45 points is considered Level 5.The eighth article In the case of insurance companies with the following situations, the regulatory authority should make corresponding adjustments to the rating results based on the comprehensive rating score: (1) If one of the following risk factors occurs, the regulatory rating result should be level 4 or lower: severe deficiencies in corporate governance; insufficient solvency; serious data falsification or risk concealment behavior; significant violations of related-party transactions; significant liquidity risk; individual rating element scores below 45 points. (2) If risk resolution is significantly inadequate and important regulatory policies and requirements are not implemented, the rating result should not be higher than the most recent regulatory rating result. (3) Other situations identified by the regulatory authority that require a downgrade of the regulatory rating should be adjusted according to the level of risk. Chapter III Rating Procedure Article 9 The regulatory rating period for insurance companies is one year, with the evaluation period from January 1st to December 31st each year, and the rating work should be completed by the end of March of the following year. Article 10 The regulatory rating procedure for insurance companies includes the formulation of annual rating plans, information collection, initial evaluation, re-evaluation, review, feedback and analysis of results, dynamic adjustments, evaluation tracking, and improvement. Article 11 The China Banking and Insurance Regulatory Commission formulates annual regulatory rating plans based on changes in macroeconomic and financial conditions, insurance company operations and risks, regulatory rules, and focus areas, specifying the rating focus, indicators, scoring criteria, and specific time arrangements for the year. Article 12 The China Banking and Insurance Regulatory Commission and its branches continuously and comprehensively collect internal and external information related to regulatory ratings of insurance companies, fully reflecting their corporate governance, capital management, risk management, business operations, fund utilization, and asset-liability management. The relevant information includes but is not limited to: off-site supervision information, on-site inspection reports and data, on-site investigation information, corporate governance, solvency and risk management capabilities, asset-liability management capabilities, information technology, consumer rights protection, case management and other regulatory information, insurance company operational management documents, audit reports, delegated insurance fund use information, complaints and reports of illegal activities, and other important internal and external information. Insurance companies are responsible for the truthfulness and accuracy of the information provided. When the regulatory authority identifies problems with data and information, it should promptly confirm and correct them with the rated insurance company, using the corrected data and information for regulatory ratings. Depending on the rating needs, the regulatory authority may further understand the situation through on-site visits, regulatory discussions, and other means. Article 13 The China Banking and Insurance Regulatory Commission and its branches conduct initial evaluations of insurance companies' risk conditions based on the rating methods and criteria stipulated in these measures and form initial evaluation results. Article 14 Based on the initial evaluation, the China Banking and Insurance Regulatory Commission and its branches reevaluate the risk conditions of insurance companies and form a reevaluation result. In cases where the reevaluation results differ from the initial evaluation results, reasons should be documented in writing. Article 15 Based on fair and just principles, unified scales, and comparable companies, the China Banking and Insurance Regulatory Commission, in consultation with its branches, adjusts the review results, determines the final regulatory rating of insurance companies. Any discrepancies from the reevaluation results should be documented in writing with reasons provided. Article 16 The China Banking and Insurance Regulatory Commission and its branches should inform insurance companies of the final regulatory rating results, major risks and issues, as well as provide regulatory opinions and improvement requirements through meetings, regulatory feedback, and regulatory notices. Article 17 After receiving feedback from the regulatory authority, insurance companies should promptly report to the board of directors and senior management, including but not limited to: rating results, major risks and issues, improvement requirements, and timely carry out the necessary improvements. Article 18 After the annual regulatory rating work is completed, if there are significant changes in the risk conditions of insurance companies, the China Banking and Insurance Regulatory Commission and its branches may make dynamic adjustments to the regulatory rating results. Article 19 The China Banking and Insurance Regulatory Commission should timely track and evaluate the progress of regulatory rating work and continuously improve the regulatory rating work of insurance companies. Article 20 The China Banking and Insurance Regulatory Commission conducts centralized and unified process tracking and management of regulatory rating work for insurance companies, promotes online processes for the entire rating work, and enhances the standardization and accuracy of the rating work. Chapter IV Use of Rating Results Article 21 Regulatory rating results are the main basis for measuring the risk level of insurance companies. A rating result of level 1 indicates that the overall risk of the insurance company is low, with strong risk resistance capabilities, and any problems and risks found are relatively minor and can be resolved through daily operational management. A rating result of level 2 indicates that the overall risk of the insurance company is controllable, with good risk resistance capabilities, but there are some weak links and hidden risks that can be corrected in normal operations, requiring regulatory attention. A rating result of level 3 indicates that the insurance company has significant hidden risks, with average risk resistance capabilities, barely able to withstand significant changes in the operating environment, but if the risks and problems are not resolved in a timely manner, they may worsen further, requiring continuous regulatory attention. A rating result of level 4 indicates that the insurance company has many problems and significant risks, with poor risk resistance capabilities, and immediate corrective measures are needed to prevent further deterioration of risks. A rating result of level 5 indicates that the insurance company is a high-risk company that may jeopardize financial stability or affect the legitimate rights and interests of insurance consumers, requiring immediate measures to address the risks. Article 22 The China Banking and Insurance Regulatory Commission and its branches should scientifically formulate regulatory plans, reasonably allocate regulatory resources, and intervene early based on the regulatory rating results and risk levels of insurance companies, using the rating results as important basis for taking regulatory measures, conducting market access, and on-site inspections in daily supervision. For companies with a rating of level 1, special measures and actions are not needed based on the rating result. For companies with a rating of level 2, special measures and actions are generally not needed based on the rating result. Depending on the weak links and hidden risks of the company, regulatory discussions and risk reminders can be conducted as needed to urge improvements. For companies with a rating of level 3, in addition to the above measures, the following measures and actions should be taken based on the situation: raising non-site supervisionFrequency analysis of management, conducting on-site inspections, requiring the company to submit a risk management improvement plan, controlling the establishment of new branches, ordering the company to control high-risk investments and business scale, and urging the company to continuously reduce risk exposure.For companies rated as level 4, in addition to the measures mentioned above, the following measures and actions should be taken in different situations: restricting the compensation levels of directors, supervisors, and senior management, limiting dividends to shareholders, ordering an increase in capital, ordering a stop to accepting some or all new business, ordering adjustments to business structure, limiting the establishment of branches, limiting commercial advertising, restricting business scope, ordering adjustments to asset structure, limiting investment forms or proportions, and legally ordering adjustments to company leaders and related management. For companies rated as level 5, a risk disposal plan should be formulated and implemented, and restructuring, takeover, or market exit may be arranged as needed. For companies rated as level S, restructuring, market exit, and other work should be accelerated in accordance with the law. Depending on the specific circumstances and severity of insurance company risks, regulatory authorities may also take other regulatory measures in accordance with the law and regulations. Article 23 For companies rated as level 1 or 2, the China Banking and Insurance Regulatory Commission and its dispatched agencies may reduce the frequency of on-site inspections and provide support in terms of institution and personnel access, product development, and business trials. Chapter V Supplementary Provisions Article 24 In principle, the results of insurance company regulatory ratings are for internal use by regulatory authorities. When necessary, regulatory authorities may share regulatory rating results with relevant government departments in an appropriate manner, provide insurance company regulatory rating results to overseas regulatory authorities on an equal basis, and require them not to provide or disclose to third parties. Insurance companies are not allowed to provide regulatory rating results to unrelated individuals, and are not allowed to disclose them for advertising, publicity, marketing, or other commercial purposes. Article 25 In the event of a major emergency affecting normal regulatory rating work, regulatory authorities may decide on the time limits and specific methods for conducting insurance company regulatory ratings based on the level and impact of the emergency. Article 26 These measures are interpreted and revised by the China Banking and Insurance Regulatory Commission. Article 27 These measures shall come into effect on March 1, 2025. In cases where the provisions of the "Regulations on the Regulatory Rating of Life Insurance Companies" (CBIRC Rules [2024] No. 4) regarding regulatory ratings are inconsistent with these measures, these measures shall prevail. This article is compiled from the China Banking and Insurance Regulatory Commission, GMTEight edited by Chen Wenfang.