The Assessment Of Domestic Systemically Important Insurers In China

There is a controversy about whether there is systemic risk in insurance industry,but both regulators and academia agree that it is necessary to strengthen the evaluation and supervision of systemic risk in insurance industry.From the international perspective,in 2013,the International Association of Insurance Supervisors(IAIS)formally promulgated the "G-SII: Initial Assessment Methodology" at the request of the Financial Stability Council(FSB).Five indicators were selected to evaluate the G-SII: scale,international activity,substitution,relevance and non-traditional non-insurance business(NTNI).In July,Ping An Insurance was included in the first list of "Global Systemically Important Insurers".In 2016,IAIS promulgated "G-SII: Updated Assessment Methodology",which readjusted the evaluation criteria of systemically important insurance institutions.On the basis of the evaluation method in 2013,it replaced the NTNI with the liquidations,which further promoted the research process of the importance of the international insurance industry system.From the domestic perspective,as early as 2015,domestic regulators put forward capital restriction regulation of D-SII in Article 19 th and 20 th of Rule No.2 of "Compensation for Second Generation".But at present,the high linkage of assets and liabilities in China's insurance industry makes the industry more financial and social.The external manifestations are problems of market behavior,capital utilization and solvency.However,the fundamental reason is that corporate governance is defective or even ineffective,which leads to the accumulation,interweaving and amplification of risks in the insurance industry.If it is not effectively prevented and curbed,the insurance industry will deviate from the essential attribute of "risk assurance".Therefore,in the Interim Measures forSupervision of Domestic Systemically Important Insurers(Draft for Second Round of Consulting Opinions)issued by the former CIRC in August 2016,it pointed out that D-SII refers to the insurance institutions which are difficult to sustain operation and may cause systemic risks once major risk events occur,due to factors such as scale,corporate governance,external relevance,asset liquidity and substitution,according to the actual situation of domestic insurance industry and on the basis of drawing lessons from the logic of international supervision.However,it does not disclose the specific index design path and evaluation steps of D-SII.The evaluation and supervision theory remains in the preliminary framework temporarily.Therefore,in order to prevent the systemic risk of China's insurance industry in advance,improve the risk awareness of insurance institutions and realize the orderly and healthy development of the insurance industry,this paper combs the literature on systemic risk assessment and supervision of the insurance industry at home and abroad.And then based on the realistic change of current China's economic situation and the importance of insurance system,this paper establishes the design path of D-SII index,redefines the weight of the index and evaluates and identifies the domestic insurance institutions of systemic importance scientifically combining the experience of international supervision and evaluation with the evaluation ideas of domestic supervision and management.Finally,putting forward the regulatory measures and risk prevention mechanism that accord with the characteristics of the current development of China's insurance industry.The paper is divided into six chapters:The first chapter is the introduction.This part introduces the background and significance of this study,literature reviews at home and abroad,research content,thinking framework,research methods and possible innovations as well as shortcomings.The second chapter mainly introduces regulatory practice and theoretical basis for the assessment of Systemically Important Insurers.Firstly,defining systemic risk,systemic importance and Systemically Important Insurers.Secondly, introducing in detail the evolution courses of IAIS index evaluation method,adjustment content and reasons of its index weights' revision and calculation.Thirdly,introducing the promotion degree of D-SII evaluation and supervision by domestic regulatory authorities is still in the process of regulatory framework construction at present.Finally,based on the idea of incorporating "corporate governance" into the evaluation factors together with the indicators of scale,relevance,substitution,asset liquidity,etc.in domestic supervision,this paper makes a detailed analysis of the impact of corporate governance on the systemic risk of China's insurance industry from the theoretical aspects of corporate governance,risk-taking behavior and systemic risk.That is,the level of corporate governance has a negative effect on the systemic risk of the insurance industry,namely,the lower the level of corporate governance,the greater the probability of triggering systemic risk events,and the greater the systemic importance.This will provide a theoretical basis for the identification of systemically important insurers in China's insurance industry.The third chapter analyses the current situation of the systemic importance of China's insurance industry.This part demonstrates and analyses the change of system importance in China's insurance industry from four aspects as follows:(1)Scale.The scale of premium is expanding rapidly,which increases its systemic importance.(2)Risk Relevance.The trend of cross-shareholding and mixed operation with real estate,securities and banking industry is deepening.(3)Operational complexity.The source of insurance funds is concealed and the investment direction is complex,forming a "radical investment + universal risk" mode of operation,and the risk accumulates rapidly.(4)Corporate governance.The governance structure of "three meetings and one layer" is not standardized,shareholders' equity has significant risks,and related transaction risks are exposed prominently,so the governance risks are increasing.Finally,it comes to the conclusion that China's insurance industry is becoming more and more important in the whole field of financial insurance.And the systemic importance promotion cannot leave each insurance organization's business development,and each insurance institution is the important carrier of"systemic importance";Therefore,it is of great significance for the insurance industry to evaluate the systemically important insurance institutions.The fourth chapter analyses in detail the major risk cases of China's insurance industry.In recent years,many small insurance institutions in China frequently raising capital in the market,although they are smaller,it is difficult to be systemically important insurance agencies,but their collective raising behavior brought about by the common risk exposure for insurance,this is also systemically significant,is likely to have risk resonance effect,thus buried risk potential for systemic risk event.As a result,based on the current representative major risk event in China's insurance industry that is Qianhai Life's frequent acquisitions.This part concretely analyses that the systemic importance of Qianhai Life is increasing with the trigger of external factors such as macroeconomic downturn and relaxation of insurance supervision policy,and the accumulation of risks continuing to spill over and spread caused by corporate governance problems,which has a serious negative externality impact on insurance industry and even capital market.At the same time,the purpose of this part is to further prove the specific factors affecting the systemic importance assessment of China's insurance industry based on cases,and to provide a further realistic basis for the empirical content of corporate governance as one of the indicators of systemic importance assessment.The fifth chapter is the index construction,weight determination and evaluation results of systemically important insurance institutions in China.This part designs the specific indicators and makes empirical analysis by using the methods of Entropy-TOPSIS and cluster analysis based on the theory of the preceding part and the IAIS2016 evaluation method as well as the idea that the former CIRC incorporates corporate governance into the D-SII evaluation factors.The results show that:(1)Ping'An and Anbang Group are D-SII and China Life Group are potential D-SII,which shows that the insurance institutes still follows the law of "big but can't fail" in China.(2)Small and medium-sized insurers are small in scale,but their collective pro-cyclical behaviors under the stimulation of external environment lead to common risk exposure,which is also of "systemic importance" to the insurance system.Small and medium-sized insurers such as Qianhai Life Insurance Company,Huaxia Life Insurance Company,Tian'an Property Insurance Company,Tian'an Life Insurance Company,Happy Life Insurance Company,Evergreen Life Insurance Company and Guohua Life Insurance Company have increased their ranking of systemic importance in different degrees in time dimension.In particular,Qianhai Life Insurance company rose from 10 th place in 2015 to 5th place in 2016.During this period,these institutions frequently acquired the listed enterprises and were notified of closure or correction by the former CIRC.(3)The more effective corporate governance is,the more effective it can restrain systemic risk and play an important role in preventing and defusing financial risk.The system importance score of Ping An Group decrease from 0.886 to 0.869 after joining the corporate governance index,which indicates that Ping An Group has a higher corporate governance level and can effectively control and reduce systemic risk.The other 23 insurance institutions have increased their system importance scores in varying degrees after joining the corporate governance indicators.Especially,Evergreen Life Insurance Company,a small and medium-sized insurer,reacts strongly and its system importance ranking rise by six places.This shows that the lower the level of governance,the more important the system of insurer is.The sixth chapter is mainly about the research conclusions and policy suggestions.Based on the qualitative and quantitative analysis above,the prudential supervision measures which are in line with the characteristics of the current development of China's insurance industry are put forward,as follows:(1)Supervision in advance.Firstly,at the micro level,strengthening the internal governance mechanism of the industry and improving the supervision system of external governance of the industry.Secondly,at the macro level,establishing a business isolation mechanism.In view of the reality of hidden sources of insurance funds,nested investment directions and stronger financial attributes of universal insurance business,clarifying the complete equity chain of insurance institutions through relevant legislation or administrative regulations.Furthermore, clarifying the channels of insurance investment,prohibiting financial innovative products whose investment structure is too complicated and establishing a risk isolation mechanism between insurance institutions and intentional capital and non-traditional insurance businesses to make information transparent and clear.(2)Supervision in process.Classified supervision can improve loss absorption capacity.D-SII which is too big to fail needs to raise its additional capital requirement.But for insurance groups with high corporate governance level,they should be allowed to relax the regulation policy because corporate governance can effectively restrain the level of corporate risk-taking,and play a role of systemic risk restraint and mitigation.Besides,they should reduce the proportion of capital restraint in the risk-mitigation part.For small and medium-sized insurance institutions which are not too big to fail,the negative externalizations brought by them should not be neglected.In view of their common risk exposure in the market and the problems of leverage and capital structure,effective risk resolution should be carried out from the source of corporate governance,and corresponding risk reserve should be calculated.(3)Supervision afterwards: recovery and disposal plan.The innovations of this paper are as following:(1)Drawing lessons from the basic elements theory of IAIS evaluation system importance,combining the theory of corporate governance,risk-taking behavior and systemic risk,this paper theoretically analyzed the impact path of corporate governance on systemic risk in Chinese insurance industry.(2)Based on IAIS2016 evaluation method and the supervision idea that the former CIRC added "corporate governance" into the evaluation factors,the specific indicators of corporate governance are designed,including six third-level indicators: "proportion of small and medium shareholders","proportion of independent directors","size of board of directors","number of shareholders' meetings","size of board of supervisors"," number of important shareholders ".In addition,the third-level indicator of "investment real estate" is added to the relevant indicators,and the evaluation system of six categories of first-level indicators and 18 second-level indicators for evaluating systemically important insurance institutions in China is reconstructed.(3)At present,most scholars mainly evaluate D-SII by subjective average weighting method,but some scholars also use objective methods such as principal component analysis and analytic hierarchy process to evaluate D-SII.Based on previous studies,this paper extends the entropy weight method to "Entropy Weight-TOPSIS Method",and objectively evaluates index weight and system importance score.