Third, it meets our national conditions.

The minimum capital requirement under the first-generation solvency regime adopted the standard of EU's Solvency I. Its parameters, scenarios and models can't fully reflect the Chinese insurance market. The second generation's models and parameters are set up based on figures from the Chinese insurance industry.

Fourth, qualitative regulation is strengthened.

The first generation focused more on quantitative regulation than qualitative regulation. China's insurance market is still young, with the industry developing fast, and the premium amount, business structure and risks changing constantly. Qualitative regulation is needed. While completing quantity-oriented supervision, the second generation requires insurance companies to improve their internal risk management mechanism and supervision approval system, relate their capital requirement to risk management abilities, and urge them to improve their risk management ability.

The plan says the second-generation solvency regime will be in line with international trends and adapted to the development of the insurance industry in China. How will it achieve both?

Following international practices is an irreversible trend, but using international standards doesn't mean China will simply copy foreign regulatory models. The second generation of solvency regulation will comply with the major trends of international financial supervision reform and combine international practices with the development of China's insurance market.

Its three-pillar framework and risk-based concept both conform to international practices. It will also abide by the newest core principles released by the IAIS.

Its models, methods and parameters are based on Chinese conditions. China's fledging insurance market, as well as the highly related capital market, are different from those of Western developed countries. Models and parameters of the second generation will be tested several times by using real figures from China's insurance industry.

The combination of international practices and Chinese conditions will be achieved via equivalence identification. We welcome foreign insurance supervisory systems to apply for equivalence with China's second-generation solvency regime. We'll also push the second generation to join in equivalence identification of other major solvency regimes. Now, we're seeking EU's Solvency II equivalence.

How can the second-generation solvency regime help improve the international competitiveness of China's insurance industry?

Currently, a worldwide universal regulation hasn't been formed. The United States and the EU are leading the trend. Most developing countries or emerging markets can only imitate their models. China's second-generation solvency regime will take full consideration of its national conditions and reflect the features of emerging markets. It aims to become a model representing emerging economies.

While establishing the second-generation solvency regime, the CIRC will enhance our influence in international rule making and the international competitiveness of our financial industry.

The second-generation solvency regime can also push the domestic market to be integrated into the international market. It can raise the risk management level of our insurance companies and thus enhance their international competitiveness. Integration into the international supervision system can help our insurance companies to implement the "going global" strategy and expand their international influence.

Development of China's Solvency Regulation

1995: China promulgated the Insurance Law, in which solvency regulation was clearly stated for the first time. Insurance companies were required to meet the minimum solvency requirement according to the size of the companies.

1998: The China Insurance Regulatory Commission (CIRC) was founded. It attached great importance to solvency and focused on solvency supervision and market monitoring.

2003: The CIRC released the Regulations on Insurance Companies' Solvency Margin and Monitoring Indexes, indicating a substantial step in solvency regulation.

2007: The first generation of solvency regulatory system was established.

2008: The CIRC released the Administrative Provisions on the Solvency of Insurance Companies in July and established a risk-based dynamic regulatory mechanism.

2012: The CIRC announced a plan to build up the second-generation solvency regulation.

(Source: CIRC)

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