Insurance companies post adequate solvency ratio in Q2

China’s insurance companies posted adequate solvency ratios in the second quarter, with over three fifths seeing a drop in the ratio quarter over quarter, the latest industry data shows.

So far, a total of 155 insurance underwriters have disclosed their solvency reports for the second quarter on the website of the Insurance Association of China.

For life insurers meeting regulation standards, the average comprehensive solvency ratio stood at 240.9 percent, while the number was 393.75 percent for property and casualty insurance companies, both well above the required 100 percent, according to the association’s data.

The solvency of an insurance company refers to its ability to pay claims and the solvency ratio is a key metric to measure an insurer’s ability to meet its long-term obligations.

Sino-French Life Insurance Co Ltd, Shin Kong-HNA Life Insurance Co Ltd and Jixiang Life Insurance Co Ltd failed to meet regulatory requirements from April to June due to an insufficient comprehensive solvency adequacy ratio, the same as the last quarter, the data indicates.

None of the property and casualty insurance players went insolvent during the reporting period.

More than 60 percent of insurance companies saw a quarter-on-quarter drop in their comprehensive solvency adequacy ratio. Industry watchers attributed the loss to business transformation under stringent supervision.

To better protect policy-holders’ interests, China strengthened its regulations in the insurance sector, which pushed industry players to return to offering more long-term and guarantee-oriented plans.

As such, many life insurers have had to retreat from selling short-term and risky policies which were once touted more as investment products than protection products, thereby generating smaller cash inflows as sales of products with more protection function cannot fill the gap quickly, according to China Insurance News’ report.

For non-life insurance companies who recorded declining solvency ratios, industry insiders said that this was mainly attributable to their high operation costs due to small market size as well as the unfavorable situation resulting from the deregulation campaign of commercial automobile insurance.

Zhu Junsheng, deputy director of the department of insurance study under the Research Institute of Finance from the Development Research Center of the State Council, was cited by China Insurance News as saying that small and medium-sized property insurance companies should seek differentiated businesses to reduce the cost of policy acquisitions.