Closing comment - C-Ross Phase II takes flight

When the China Banking and Insurance Regulatory Commission revised C-Ross in Phase II rules, and no doubt as it already thinks hard about Phase III, the following words from China Taiping Life's chief financial officer may well justify all the effort.

How, we asked Teddy Au Yeung, will China's insurance industry look, in five or 10 years? "I think the industry will become risk-centric," he replied.

That, in a nutshell, is what C-Ross Phase II seems to set out to achieve - to make CIOs, CFOs, CROs, and indeed CEOs and the boards, all think about risk.

That's not to say they were not doing so already, but C-Ross Phase II surely reinforces that practice, just as CIOs and CROs across Europe will tell you Solvency II did.

By reading 400 or so pages of Phase II rules, by listening to CIOs, CFOs, asset managers, and the heads of working groups for Phase II rules, and now by digesting the annual results from underwriters already calculating their solvency by those rules, one thing - apart from increasing risk-centricity - becomes abundantly clear.

Our thanks again to those who contributed, invaluably, to our series – Ellen Yang of DWS, Xin Liu of Sunshine Insurance Group, Hugo Choi of Munich Re APAC, Teddy Au Yeung of China Taiping Life, Qian Zhu of Moody's, Leo Ng of AIA China, and more who helped facilitate all the fruitful discussions.

It's this: China's insurance industry is not markedly different to others elsewhere. It faces similar challenges in low interest rates (though its domestic debt yields outdo others elsewhere), the need to understand alternative investment types, potential lack of enough duration in classes that CIOs understand better, and a need to talk more internally, including about risk.

As a faster-growing industry, there are also cases of premiums outshooting supporting claims data (health) others just growing very quickly (trade cover) and lines needing reform (motor).

But C-Ross Phase II is tackling those issues – and one might well posit equivalents in Europe's industry recently, in cyber, unit-linked, and business interruption/events cancellation during the pandemic, respectively.

In one sense, China's industry might be more future-ready – and not just because Teddy Au Yeung also speaks of evolving a 'virtual reality' distribution channel!
As a more nascent industry, premium growth rates commonly outdo Europe's, as penetration in a massive market grows.

And an insurer can shift its general account, if the CIO needs to enter new asset classes, for instance, quicker than moving a life liability back-book with 8%-plus guarantees - such as lumber Europe's lifers.

And now, C-Ross Phase II rules should help managers of China's back-books, and new business, and business development, 'speak' better with their CIOs, to match on duration, yield and future ambitions.

And what of the CBIRC, charged with supervising insurers in Phase II?

One imagines its challenges are, also, not that different to those of its peers worldwide.

Ensuring risks being taken are identified, measured, monitored, mitigated and managed by insurers early, accurately, and prudently. Ensuring insurers' senior staff understand the risks, and their own obligations, clearly. And, ultimately by all this and more, to ensure society is appropriately insured. An uninsured society is a scary place to live - and nobody, undoubtedly including the CBIRC, wants that.

The headline of the editorial opening our C-Ross series – 'Entering the Dragon' – evoked perhaps an air of mystery, of the unknown, or opaqueness, around China's insurance industry, its regulator and rules.

In truth, though, they are neither mysterious nor unknowable nor opaque – and we hope our series since 14 March has helped illuminate C-Ross Phase II further, for you.