International perspectives on solvency modernisation: Asia



Current status

Countries already applying a Risk-Based Capital (RBC) regime are Japan (since 1997), Indonesia (since 2000), Taiwan (since 2002), Singapore (since 2004), Malaysia (since 2009), Thailand (since 2011) and South Korea (since 2011). A regulatory regime similar to Solvency I – ie based on a solvency ratio/margin approach – is used in many other Asian countries, some of which are considering moving to an RBC approach: China, Hong Kong, the Philippines and Vietnam are considering moving an RBC regime; while India has not announced plans to change its solvency regime.

What's changing

In general, there is a tightening of insurance supervision and regulation in Asia, including solvency modernisation. Specifically in regards to solvency: higher minimum capital requirements, the adoption of RBC solvency systems, and the introduction of dynamic stress tests and the use of scenarios. These changes are occurring alongside increased focus on consumer protection and the alignment of accounting standards with the International Financial Reporting Standards.

Spotlight on some of the core markets where Swiss Re operates

Focus on Japan
Japan has been a close observer of Solvency II, especially with regards to group calculations and equivalence. Their current regime is already quite close to Solvency II, and Japan plans to implement an economic value-based solvency regime, which will bring it even closer. Expected changes include: an increase in the Solvency Margin Ration (MCR), which determines capital requirements; and same treatment of assets and liabilities based on market consistent valuation. No time schedule has been announced, but results from the first field test were published in June 2011 and stricter regulations regarding confidence levels are to be enforced in April 2012.

Focus on China
The largest market in Asia, China is expected to move towards a RBC approach, though no timeline has been announced. As the current regime does not count for diversification, any new regulation is expected to consider the growing significant of diversification and its benefits. It is also expected that capital requirements will be largely affected, driven by higher charges on underwriting risk.

Focus on Singapore
Singapore introduced an RBC approach in 2004. While no plans have been announced regarding a move towards Solvency II, Singapore's authorities generally respond quickly to global standards and are expected to be interested in equivalency amongst Asian regimes. Further solvency development should address issues of diversification and operational risk, as well as Group calculation.

Focus on South Korea
Similar to Japan, South Korea has also been closely observing Solvency II developments in Europe. Having just introduced a RBC approach in April 2011, their solvency regime is already quite close to Solvency II. Future solvency developments are expected to address Group-level calculation and diversification.

Published 10 October 2011

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