Solvency Evaluation On Reinsurance Companies In China

Reinsurance is the practice whereby one party called the Reinsurer in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company. Reinsurance is international convention.Since reinsurances take the risk of ultimate payment for claims, commonly they are financially robust with high credit rating. However, with a series of catastrophic events, reinsurances eventually payment the most part of claims, they are exposed to financial crisis, even bankruptcy. Under such background, insurance supervisory authorities begin to attach much more importance on reinsurances, especially on solvency status.At the same time, with the dramatically rapid growth of insurance industry in China, more and more foreign reinsurance companies begin to undertake reinsurance activities in China market. After joining WTO, China has abrogated statutory ceding ratio of 20% for all original insurance. However, regulation on reinsurance in China still in primary stage, though China Insurance Regulation Committee(CIRC)begins to take more attention in reinsurance.From the point view of supervisor, this article tries to find out basic principles of evaluation of solvency on reinsurance companies. Main contents including:Rudimental concepts on reinsurance, esp. concerning solvency;Introduction of two leading theories and methods adopted by European Union and America supervisory authority respectively and brief comment;Brief introduction of the history and current prescript of solvency regulation in China reinsurance, similarly, necessary opinions are given by the author.Finally, this article gives some useful suggestions, in hope that can make instructive for the development of reinsurance market in China.