Regulator Tests New Rules for Better Oversight of the Insurance Industry

China’s insurance regulator released a series of rules on Thursday to strengthen supervision of how insurers manage their assets and liabilities, the latest move in Beijing’s broader efforts to curb financial risks.

The China Insurance Regulatory Commission (CIRC) said it would implement these new rules on a trial basis, with no regulatory actions based on rating results, for at least a year to allow insurers to adjust.

The CIRC will rate insurers from A to D based on their ability to manage their assets and liabilities. Those with low ratings will be subject to more oversight and restrictions on how they use their capital and sell their products, according to draft rules released by the CIRC.

Companies with a D rating will be banned from certain investment activities or launching new products within a certain period of time, while those with high ratings will be encouraged to launch new products and use their funds more freely, the CIRC said.

“No regulatory actions doesn’t mean no supervision,” said Lin Du, deputy director of the Fund Regulatory Supervisory Division of the CIRC’s Insurance Fund Management Regulatory Department. “We will strengthen our analysis and risk monitoring through system improvement, which is an ongoing task.”

Du said at a press conference that insurance companies are required to fix the mismatch in their assets and liabilities during the trial period. Subsequently, insurers that still have a “severe” mismatch in their assets and liabilities would face the CIRC’s regulatory measures.

China’s financial regulators have been stepping up efforts recently to crack down on risky activities as Chinese insurers are making dubious investments in pursuit of better returns, such as acquiring huge stakes in listed companies and snapping up real estate assets at home and overseas.

The CIRC last week announced a takeover of embattled Anbang Insurance Group Co. Ltd., China’s third largest insurer, for a year to protect consumers as the company struggles to pay back investors following a massive global buying spree, including its $2 billion purchase of New York’s Waldorf Astoria hotel in 2014.

Last month, the CIRC made new rules to limit how much offshore financing can be backed by domestic guarantees, part of its efforts to curb insurance companies’ debt-driven overseas investments.

In November, the CIRC banned three life insurance firms from issuing new products in the next six months due to serious problems in the companies’ product design and management.

Official data showed by the end of 2017, the insurance industry had combined assets totaling 16.8 trillion yuan ($2.7 trillion), up 10.8% from the beginning of the year.