A Study on the Minimum Solvency Capital Requirement of China's Non-life Insurers

This paper employed publicly available data from non-life insurers during 2009 ~ 2012 in China to test the minimum solvency capital requirement standards by China's Solvency I,based on Campagne(1961)'s model. The study had three findings. Firstly,the minimum solvency capital requirement standards in China's Solvency I fell in the range we estimated,and it was closer to the minimum bound,implying that the current standard was aggressive but remained acceptable. Secondly,the loss ratio calculated using retained premiums as the denominator did not reflect the company's actual loss ratio and underwriting risk. The minimum solvency capital ratio was 3. 5 percentage points higher on average if earned premiums,compared to retained premiums,were used as the denominator. Finally,the minimum solvency capital ratio was almost 3 percentage points higher on average if estimated under a normal distribution rather than a Beta distribution. Since CIRC announced the C-ROSS reform in China,this study has been the most complete and in-depth test and summary of China's Solvency I. This paper will undoubtedly provide constructive insights for the development of C-ROSS.