Insurance company institution regulation and classification regulation continue to advance. Recently, Blue Whale News learned from the industry that the Property Insurance Department of the Financial Regulatory General Bureau has recently sent a letter to various financial regulatory bureaus and property insurance companies, soliciting opinions on the "Property Insurance Company Regulatory Rating Indicators and Scoring Rules (Draft for Comments)", requesting that relevant suggestions and opinions be provided in writing before October 11th.

Looking at the specific content, the rating indicators are refined from 9 dimensions, with different weights assigned. Compared to the regulatory rating method issued for life insurance companies earlier this year, there are similarities and differences.

Industry experts analyze and point out that regulatory rating is an effective measure for regulatory authorities to dynamically manage insurance institutions. It has a consistent overall regulatory approach for different financial institutions, and it will also differ in assessment indicators and weights for specific industries.

Advertisement

The 9 major dimensions "examine" the performance of property insurance companies, with regulatory adjustments and corporate governance dimensions accounting for a higher weight.

Looking at the specific content of the regulatory rating indicators and scoring rules, they cover 9 dimensions, including corporate governance, solvency and risk management, business operations and underwriting profitability, reinsurance, fund utilization and asset-liability, liquidity risk, information technology risk, other risks, and regulatory adjustments.

Under each dimension, different risk points, indicator names, indicator definitions, indicator scores, and specific content of scoring rules are detailed.

In terms of weight, corporate governance, solvency and risk management, and business operations and underwriting profitability each account for 15% of the scoring weight. Reinsurance, liquidity risk, and other risks account for 5% of the weight, fund utilization and asset-liability, and information technology risk account for 10%, and regulatory adjustments account for 20% of the scoring weight.

In terms of corporate governance, the assessment mainly revolves around two risk points of compliance and equity. Among them, the corporate governance compliance evaluation score indicator accounts for 90 points, and the scoring assessment refers to the "Bank and Insurance Institution Corporate Governance Regulatory Evaluation Form"; the equity indicator focuses on the equity pledge ratio of the top 10 shareholders.

In terms of solvency and risk management, solvency adequacy, reserve management, and various risk management have been assigned different indicator scores. The core and comprehensive solvency adequacy ratios are particularly crucial, each accounting for 20 points of the indicator score, and various risk management situations are scored based on their respective system construction, work processes, division of responsibilities, and implementation.

In terms of business operations and underwriting profitability, the focus is on multiple data such as operations, reserves, costs, and profits. Many data are linked to industry deviation, such as using the weighted comprehensive compensation rate and industry deviation as indicators to conduct a comprehensive assessment of the institution and industry performance, and scoring accordingly. In addition, data such as premium growth rate, commission rate, and business management expense rate are also comprehensively assessed based on industry conditions.It is worth mentioning that multiple data involving service entity classes have been incorporated into the scoring criteria, covering such aspects as the proportion of premium income from green insurance, technology insurance, liability insurance, domestic trade credit insurance, and short-term export credit insurance.

In terms of regulatory adjustments, scores are given for the rectification and governance performance of property insurance companies in various aspects. For instance, if companies fail to complete rectification of identified issues as required on schedule, points will be deducted based on the severity of the issues.

The document also includes the reasonableness of premium growth rate, overall leverage ratio, credit risk situation, and other content in the specific regulatory adjustments. Through the constraints of the detailed rules, it promotes the stable development of the industry.

At the same time, the document also clarifies that for companies with serious governance defects, insufficient solvency, serious data falsification, risk concealment, serious violations of related party transactions, significant liquidity risks, and low scores in individual rating elements, the final regulatory ratings must be below level 4.

The classification and supervision approach continues, with special categories set according to the characteristics of property insurance.

Strengthening graded and classified supervision is an important trend in the current insurance industry regulation. As early as February 2023, the regulator had sought opinions on the "Classification Supervision Measures for Life Insurance Companies"; in March this year, the "Regulatory Rating Measures for Life Insurance Companies" were formed, proposing to monitor and rate the risks of life insurance companies from six dimensions: corporate governance, business operations, fund utilization, asset-liability management, solvency management, and other aspects, and set a bonus item for "fulfilling environmental, social, and governance (ESG) responsibilities."

Comparing the regulatory rating items of life insurance companies, this property insurance regulation is similar yet different. "Among them, the assessment of solvency and risk management capabilities, business operations and underwriting capabilities, and other indicators is higher than the classification weight of the life insurance industry. At the same time, according to the characteristics of the property insurance industry itself, special categories such as technology information risk and reinsurance have been established," Wanlian Securities Investment Consultant Qu Fang analyzed to Blue Whale News, "The regulatory approach is consistent, but there will be slight differences in assessment indicators and weights for specific industries."

Not only for insurance institutions, over the years, the financial industry regulation has implemented relevant classification rating supervision regulations for securities companies, insurance asset management companies, trust companies, and others.

"Regulatory rating is an effective measure for regulatory authorities to dynamically manage financial institutions. It combines compliance supervision with risk supervision, guiding insurance institutions to control their own operational risks while developing their businesses. At present, regulatory ratings have been effectively implemented in many financial industries for many years, and the actual effects are obvious," Qu Fang analyzed to Blue Whale News.

"The implementation of classified supervision is more conducive to the rational allocation of regulatory resources, targeted and refined supervision, and improving the quality and efficiency of supervision," a financial analyst pointed out.Overall, upon examining industry analyses, "promoting development" and "preventing risks" are the two main directions of regulatory indicators and also the core requirements of the new "National Ten Articles." The draft for comments on the property insurance rating indicators and scoring rules also reveals this regulatory logic.

"The introduction of regulatory ratings can not only encourage insurance institutions to strengthen their own supervision and provide more detailed development reference rules, but also benefit policy buyers by providing references. It is only by urging the industry to operate in a standardized manner and promoting a virtuous cycle that the fundamental health and long-term development of the industry can be ensured," said industry insiders.