108: China's Risk Oriented Solvency System for P&C Companies
In March 2012, China Insurance Regulatory Commission (“CIRC”) launched a three-year project to research and develop a more robust China risk oriented solvency system (“C-ROSS”). CIRC organized 13 task forces to research the solvency framework, capital modeling, and various risk types for both life and P&C insurance exposure. The speakers for today’s panel include officers from the CIRC, and leaders of various C-ROSS task forces, including the “P&C Underwriting Risk Project” and the “Other Risks and Risk Correlation Project”. Presentation 1: Introduction of C-ROSS 1. The main characteristics and shortcomings of the current solvency system in China 2. The objectives of C-ROSS 3. The structure of C-ROSS and its main characteristics 4. The difficulties in building C-ROSS and the timetable for finishing C-ROSS 5. C-ROSS and the international common standard in solvency system Presentation 2: As an emerging market country, China's insurance industry reflects the classic characteristics of rapid development and big change. The current measurements of underwriting risk of a property and casualty insurance company in China Risk Oriented Solvency System (C-ROSS) are creatively designed to meet Chinese realistic conditions. Several stochastic models are tested and evaluated in Quantitative Impact Study (QIS), including a new stochastic chain ladder model to better capture the inherent risk. A set of weighted coefficients of variance is reached by taking into consideration the applicability of each used stochastic model. Then a new hierarchical reduction method is introduced to decide the magnitude of risk factors (reserve and premium) for each risk unit. As a core measurement, it provides effective solution to scale impact and systemic risk. C-ROSS tends to not only the insurance company’s overall capital requirement but also the amount needed for various risk type and business of line. Finally, C-ROSS recognizes that volatility alone cannot portray the risk profile accurately. As a result, some regulatory indicators are put into the calculation to punish behavior such as artificially lowering reserve and premium rate level. Presentation 3: Natural Catastrophe is the most volatile P&C risk that C-Ross tries to quantify. This presentation illustrates a new approach, Event-linked Dependency, to create the new correlation among regions in the C-Ross Nat Cat framework. Solvency II inherits its framework from Basel II of EU Banking Industry. One big difference between banking and insurance, from the actuarial point of view, is that the risk distribution of the banking industry is relatively asymmetric, while the distribution of the insurance industry is generally right-skewed, especially for the catastrophe risks. For cat risks, this kind of feature defies good solutions under a correlation matrix framework. The correlation matrix approach creates inconsistencies between theoretical results and cat model results. To solve the issue, a new approach, which is to minimize the weighted-MSE instead of relying on a presumed distributions, is discussed. This new correlation framework is planned for use in the China Risk Oriented Solvency System (C-ROSS) for calibrating cat risks. We hope colleagues from the actuarial field worldwide can provide feedbacks to this new approach before China Risk Oriented Solvency System (C-ROSS) is formally rolling out in 2015. Presentation 4: As one of the largest insurance groups in China, Pingan plays an important role in China financial market, and has been developing its enterprise risk management system. The global financial crisis underscored the need for public authorities to act promptly and proactively to identify financial firms that are systemically important and to take measures to lessen the impact and reduce the risk. In 2013 Pingan was selected to be one of the GSIIs (Global Systematically Important Insurers), this opportunity has brought a series of challenges and higher requirements on risk management and capital management. We would like to share our thoughts on this issue and hope colleagues from the actuarial field worldwide can provide suggestions on the topic of systematic risk management
