China's C-ROSS Compliant Regulatory Capital Bonds

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FOREWORD

IN 2015 THE CHINA INSURANCE REGULATORY COMMISSION (CIRC) FINALISED ITS CHINA RISK ORIENTED SOLVENCY SYSTEM (C-ROSS). AT THE SAME TIME, CHINA LIFE’S PERPETUAL NOTE WAS ISSUED UNDER THE NEW STANDARDS. IT MARKED A NEW PRECEDENT FOR FINANCIAL INSTITUTION REGULATORY CAPITAL BONDS IN CHINA.

While bank capital instrument criteria has become more harmonized globally through the Basel III framework, the insurance capital instrument criteria remain highly customised to the domicile of the insurer. This limits the ability of ratings agencies and investors to easily categorise and compare different country insurance capital instruments by tier of capital. Indeed for many insurers it is a minimum criteria for ‘equity credit’ from ratings agencies that drives a more loss-absorbing structure than the country’s prudential supervisor.

KEY TAKEAWAYS

Investors have ingested billions of dollars in Asian bank capital since 2013. Asian insurance credit is more scarce and C-ROSS bonds could provide a chance to diversify portfolios.
C-ROSS outlines structural terms for new capital instruments for Chinese insurers, including expected/ minimum requirements. Although China Life’s bond shared many similarities to a Basel III bond there are key differences.