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The China Risk-Oriented Solvency System: A Comparative Assessment with Other Risk-Based Supervisory Frameworks

  • Derrick W. H. FungEmail author
  • David Jou
  • Ai Ju Shao
  • Jason J. H. Yeh
Article

Abstract

The China Risk-Oriented Solvency System (C-ROSS), the new risk-oriented regulatory framework for the Chinese insurance industry, was fully implemented at the beginning of 2016. In this paper, we identify the main features of the C-ROSS and compare its rules and standards with those of the Risk-Based Capital (RBC) system in the United States, the Solvency II system in the European Union, and the Swiss Solvency Test (SST) in Switzerland. Using a conceptual framework proposed by Cummins et al. (J Insur Regul 11:427–447, 1994) and Holzmuller (Geneva Pap Risk Insur 34:56–77, 2009), we analyse C-ROSS according to 11 criteria and find that the system scores are substantially better than those of RBC, and more or less as good as those of the Solvency II or SST systems. We also contrast the strengths and weaknesses of C-ROSS with those of the RBC, Solvency II and SST systems. Our analyses are of value to regulators developing risk-based supervisory frameworks, and to insurers engaging in business in any of the four geographic regions considered.

Keywords

China Risk-Oriented Solvency System risk-based supervision insurance industry 

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Copyright information

© The International Association for the Study of Insurance Economics 2017

Authors and Affiliations

  • Derrick W. H. Fung
    • 1
    Email author
  • David Jou
    • 2
  • Ai Ju Shao
    • 3
  • Jason J. H. Yeh
    • 1
  1. 1.Department of FinanceThe Chinese University of Hong KongHong KongChina
  2. 2.Taikang Life Insurance Company LimitedBeijingChina
  3. 3.Department of Risk Management and InsuranceMing Chung UniversityTaipeiTaiwan

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