The CIRC said it would take into full consideration the development of each insurance company. While ensuring insurance companies' capital capacity and steady development, the CIRC is aimed at achieving a smooth transition to the second generation of the solvency regime.

Protecting consumers is the ultimate goal of insurance regulation. In this regard, the new solvency regulatory system will be better equipped to do so.

The current regulatory system lays more stress on solvency ratio, which can lead to misconduct in the market, said Wang Zhichao, Secretary General of the Insurance Association of China, at a symposium in June. For example, if an insurance company delays payment or underpays the claims of policyholders, it can have a higher capital ratio and thus be more solvent.

The second generation of solvency regulation will take the market behavior of insurers into consideration and increase the transparency of information disclosure. Therefore, for consumers, the new system can, to some extent, solve their problems of getting claims settled, Wang said.

"The new system's stricter requirement on information disclosure can also help consumers compare the financial strength of different insurers to make rational decisions," said Chen.

Insurers' reaction

PICC Property and Casualty, China's biggest non-life insurer, is making a number of preparations for the new regulation, according to Chen. First, it has adopted an economic value-added evaluation model for its products and branches since 2009, evaluating both profits from the year and returns from risk capital in order to guide its staff to attach importance to the management of risk capital.

PICC Property and Casualty has also researched foreign solvency regulatory practices. "We used our company's figures and the methods and standards from the EU's Solvency II to provide data for the development of our country's new solvency regime," Chen said. The first-round of risk assessment has just begun, and PICC Property and Casualty is among the insurers that will undergo examination.

In addition, PICC Property and Casualty is the first financial company to establish the compliance system in accordance with the Standard for Enterprise Inner Control created by six ministries, including the Ministry of Finance. It has found risk points and implemented measures for control. PICC has also hired consultants to develop a comprehensive risk management system for the company.

"While we are waiting for the details of China's 'Solvency II,' we will continue to actively manage our capital," said Zhuo of the Sino-U.S. United MetLife Insurance Co. Ltd., a joint venture established by a subsidiary of MetLife Inc. and Shanghai Alliance Investment Ltd.

"Financial strength and risk management are MetLife's core competencies, which we definitely abide by," Zhuo said. Sino-U.S. United MetLife's solvency ratio at the end of 2011 was close to 200 percent and was above 230 percent at the end of the second quarter of 2012.

The company has always paid attention to product design and product features to avoid high capital-intensive products. It has also closely monitored the movement of capital markets which could impact the value of its invested assets, said Zhuo. It will continue to implement its overall risk management, help its capital management and look for various ways to mitigate its capital burden.

Insurance companies should make early preparations, Jia Jingwei, head of China business development of Swiss Re, told China Insurance News. First, they need establish or improve their data collection and risk management systems. Second, their investments should match their operations, and they should strengthen the interaction between business side of insurance and assets management. Third, insurers should take the classification of their self-owned capital into consideration.

In addition, enterprise risk management is an essential requirement of the new solvency regime. It should be systematic and integrated in insurers' daily businesses and operations. The establishment of risk management will be a challenge for insurers, Jia added.

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