C-ROSS (China Risk Oriented Solvency System)
A risk-based solvency regime applied to Chinese insurers since 2016, organized in three pillars like Solvency II, and strengthened by a second phase in force since 2022.
The Chinese insurance market has become one of the world's largest by premium volume. To manage its growth and bring supervision closer to international standards, the Chinese regulator implemented in 2016 a risk-oriented solvency regime called C-ROSS. It follows Solvency II's three-pillar architecture: quantitative capital requirements calculated according to insurance, market and credit risks; a qualitative assessment of each insurer's risk management, which can adjust its capital requirement; and transparency and market disclosure obligations. It differs, however, on several points, notably an integrated risk rating that classifies each insurer and sets the intensity of supervision, and parameters calibrated on Chinese market realities. A second phase, in force since 2022, tightened the regime: stricter requirements on own funds quality, greater account of complex investments and asset transparency, better capture of concentration risks. The regime has been recognized as having significant similarities with international standards, but without formal equivalence with Solvency II. For a European reinsurer working with Chinese cedants, it determines their appetite for reinsurance and their ability to pay for it.
Hypothetical case: after the second phase took effect, applied from the solvency reports for the first quarter of 2022, a Chinese life insurer sees its solvency ratio fall, as some complex assets become more capital-intensive. It reduces these investments and buys quota share reinsurance on a block of savings contracts to restore its margin.
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