On 5th June 2017 the China Insurance Regulatory Commission (CIRC) published its 'Notice Requiring the Launching of Internal Review Work in Respect of Solvency Data Integrity' (the Notice). The Notice's key contents are:
1. Solvency Review - Data
The Notice requires all insurance companies to deliver to CIRC, on or before 30th June 2017, internal review reports (Solvency Review) concerning the integrity, compliance and completeness of each insurer's solvency data, as such data has been set out in each insurer's solvency reports for:
- all four quarters, financial year 2016; and
- the first quarter, financial year 2017.
2. Solvency Review - Content
The Notice requires each Solvency Review to cover:
- Asset Valuations - in particular, the veracity of accounting valuations of long-term equity holdings;
- Reserving – in particular, the matching of assets, liabilities and expected cash outflows;
- Prudential Capital – in particular, the veracity of minimum capital valuations;
- Overall Risk Ratings – in particular, the completeness, accuracy and veracity of data submitted in respect of the 'big four' risks - (i) operational; (ii) strategic; (iii) reputational; and (iv) liquidity; and
- Information Disclosure – in particular, the timely release of solvency-related information each quarter.
3. Remediation and Inspection
The Notice requires that all short-comings identified in an insurer's Solvency Review be remedied via a formal risk-management plan, within a fixed time period. During the second half of 2017, CIRC will organize in-situ inspections of the integrity of each insurer's data in respect of its solvency position, taking into account each insurer's completed Solvency Review. Further, the Notice states that any insurer which fails to submit a Solvency Review to CIRC, as required by the Notice, will be treated as a "serious case", and these insurers will be targeted for priority CIRC in-situ inspection. If, during the course of these in situ inspections, CIRC discovers an insurer has deliberately concealed short-comings, and/or prepared "half-baked" Solvency Reviews, CIRC will ensure these insurers face severe punishment.