Starting from 16 February 2015, China Insurance Regulatory Commission (CIRC) has announced the new regulatory changes on universal life insurance products. The new scheme allow China-based insurers to determine their own guaranteed return (only for universal life products).
This is in line with government's aim to curb irrational competitions between life insurers, specially from smaller insurance companies with online sales.
Deregulation will encourage insurers to raise profit margin of universal life products, as well as enable companies with better risk management capabilities and financial strength to offer higher coverage and improve policy's quality. Total premiums for universal life insurance in 2014 was CNY400 billion (increased by 21.9% from 2013).
The key regulatory changes for univeral life insurance products in China are:
- Guaranteed minimum interest rate is fully market-oriented;
- Guaranteed rate cap increase, from 2.5% to 3.5%. Products priced at a guaranteed rate higher than 3.5% will require CIRC approval;
- Increase in both protection coverage and regular premiums with sum insured for death to be at least 20% of account value (previously was 5%) and the cap on regular premiums is increased to CNY10,000 (previously CNY6,000)
- Compulsory reserves for universal life liabilities to strengthen insurer's risk management. Companies are required to set up separate reserves to cover the guaranteed returns and variable returns.
- Lower cap on expense loading
Source: http://www.asiainsurancereview.com/News/View-NewsLetter-Article/id/32164/Type/eDaily/China-Universal-life-rate-deregulation-to-test-insurers
