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The China Insurance Regulatory Commission’s (CIRC) implementation of penalties on four property and casualty (P&C) insurers has been hailed as a credit positive action by international ratings agency Moody’s.
The four insurers – PICC Property and Casualty Company, Ping An Property & Casualty Insurance Company of China, China Pacific Property Insurance Company, and Taiping General Insurance Company – were barred from underwriting new commercial motor insurance policies for three months in several provinces. Some of the insurers’ executives were also held liable, and were fined between RMB40,000 (US$6,300) and RMB100,000 (US$157,000) each.
According to the CIRC, the insurers violated several regulations, including the use of premium rebates and actuarial adjustments to increase ceding commissions from reinsurers, with the aim of lowering the reported expense ratios of their motor line businesses. These violations occurred during September 2016 and July 2017, and lowered the insurers’ expense ratio on their motor insurance businesses by 3.7-9.7 percentage points, the CIRC said.
“This decision is credit positive to the Chinese P&C insurance industry because it shows that the CIRC is tightening its monitoring and further promoting underwriting discipline of the industry,” said Moody’s in its report. “The penalty sends a strong signal that the regulator is holding management accountable for misbehaviour and poor underwriting practice of the branches.”
With regard to the aftermath of the ruling, Moody’s expects that the CIRC will tighten its supervision of the insurance sector, after it implemented the second stage of pricing liberalisation on commercial motor insurance in June 2017.
As for the financial impact of the ruling on the offending insurers, the ratings agency believes that the losses will be manageable, as the premiums from the areas they are banned from writing new business amount to only 2%-7% of total premium income.
