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The China Risk-Oriented Solvency System: A Comparative Assessment with Other Risk-Based Supervisory Frameworks

Author

Listed:
  • Derrick W. H. Fung

    (The Chinese University of Hong Kong)

  • David Jou

    (Taikang Life Insurance Company Limited)

  • Ai Ju Shao

    (Ming Chung University)

  • Jason J. H. Yeh

    (The Chinese University of Hong Kong)

Abstract

The China Risk-Oriented Solvency System (C-ROSS), the new risk-oriented regulatory framework for the Chinese insurance industry, was fully implemented at the beginning of 2016. In this paper, we identify the main features of the C-ROSS and compare its rules and standards with those of the Risk-Based Capital (RBC) system in the United States, the Solvency II system in the European Union, and the Swiss Solvency Test (SST) in Switzerland. Using a conceptual framework proposed by Cummins et al. (J Insur Regul 11:427–447, 1994) and Holzmuller (Geneva Pap Risk Insur 34:56–77, 2009), we analyse C-ROSS according to 11 criteria and find that the system scores are substantially better than those of RBC, and more or less as good as those of the Solvency II or SST systems. We also contrast the strengths and weaknesses of C-ROSS with those of the RBC, Solvency II and SST systems. Our analyses are of value to regulators developing risk-based supervisory frameworks, and to insurers engaging in business in any of the four geographic regions considered.

Suggested Citation

  • Derrick W. H. Fung & David Jou & Ai Ju Shao & Jason J. H. Yeh, 2018. "The China Risk-Oriented Solvency System: A Comparative Assessment with Other Risk-Based Supervisory Frameworks," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(1), pages 16-36, January.
    • Handle: RePEc:pal:gpprii:v:43:y:2018:i:1:d:10.1057_s41288-017-0046-3
    DOI: 10.1057/s41288-017-0046-3
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    References listed on IDEAS

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    1. Martin Eling & Hato Schmeiser & Joan T. Schmit, 2007. "The Solvency II Process: Overview and Critical Analysis," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 10(1), pages 69-85, March.
    2. Cummins, J. David & Harrington, Scott E. & Klein, Robert, 1995. "Insolvency experience, risk-based capital, and prompt corrective action in property-liability insurance," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 511-527, June.
    3. Merrill, Craig B. & Nadauld, Taylor D. & Stulz, Rene M. & Sherlund, Shane, 2012. "Did Capital Requirements and Fair Value Accounting Spark Fire Sales in Distressed Mortgage-Backed Securities?," Working Papers 13-01, University of Pennsylvania, Wharton School, Weiss Center.
    4. Rolf Nebel, 2004. "Regulations as a Source of Systemic Risk: The Need for Economic Impact Analysis," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 29(2), pages 273-283, April.
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    Cited by:

    1. Asier Garayeta & J. Iñaki De la Peña & Eduardo Trigo, 2022. "Towards a Global Solvency Model in the Insurance Market: A Qualitative Analysis," Sustainability, MDPI, vol. 14(11), pages 1-18, May.
    2. Liu, Shuyan & Jia, Ruo & Zhao, Yulong & Sun, Qixiang, 2019. "Global consistent or market-oriented? A quantitative assessment of RBC standards, solvency II, and C-ROSS," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).

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