China will restrict business activities of insurers with low asset liability management capabilities in a bid to address risks in the sector, according to the country’s insurance regulator.
Insurance companies will be rated from A to D by the regulator based on their ability to ensure the matching of maturity, cash flow and cost on both sides of their balance sheets, and those with low ratings will be banned from certain investment activities, according to draft rules released by the China Insurance Regulatory Commission (CIRC).
Companies with the rating of D, the lowest, will be banned from applying to launch new products within a certain period. Salaries of the top management of these firms will also be restricted.
Insurers with high ratings will be favored by policies to launch new products and use their funds more freely.
The rules are open to revisions and will be implemented next year.
China’s financial regulators have been stepping up efforts this year to correct market irregularities, targeting high-risk activities such as off-balance sheet financing.
The CIRC last month banned three life insurance firms from issuing new products in the next six months due serious problems found in the companies’ product design and management, and said it would continue to tighten regulatory supervision.