China, one of the world’s fastest growing insurance markets, is undergoing important changes to both its auto insurance market and its insurance solvency supervisory system, a group of casualty actuaries were told at the CAS Spring Meeting in May.

The changes signal a shift away from heavy rate regulation and toward more robust solvency regulation, a trio of actuaries from China said at a session titled “The Dynamic China P&C Market — An Update.”

China’s market has grown between 13 and 35 percent a year for the past decade, said Qian (Rita) Tao of China Property & Casualty Reinsurance Co, a new Fellow of the Casualty Actuarial Society. Property-casualty insurers wrote RMB 754 billion ($120 billion U.S.) of premium in 2014, 16.4 percent more than a year earlier. By contrast, U.S. property-casualty insurers wrote about $500 billion and grew just over four percent, with both figures reflecting the maturity of the U.S. market.

All the growth is creating opportunities for property-casualty actuaries, said Robert Conger, FCAS, a consultant with Towers Watson. Together, Mainland China and Hong Kong have 100 casualty Fellows, enough to create a new CAS Regional Affiliate in Asia named ARECA, which stands for Asia REgion Casualty Actuaries.

Rapid growth is not the only difference between the Chinese and U.S. markets, Tao said.

China’s market is much more concentrated than in the U.S. There are 67 primary P&C insurance companies as of 2014, versus thousands in the U.S.; the 10 largest Chinese companies own 90 percent of the market, versus the just less than 50 percent share owned by the 10 largest American insurers.

“The job market for actuaries in China is very good at the moment.” — Bo Huang

China is also less litigious than the U.S., Tao noted. Only three percent of premiums pay for non-auto liability insurance. However, auto insurance, like in the United States, is the largest line of business, with more than 70 percent of premiums.

China requires minimum statutory third-party liability auto insurance, said Li Zhang, FCAS, senior actuary of China Property & Casualty Reinsurance Co. However, most premium pays for voluntary coverage, which includes higher limits for liability insurance and coverage for vehicle damage and theft. There are three standard voluntary policies — the ones issued by the three largest insurers (with very minimal coverage difference); other companies simply follow those leaders.

The minimum third-party liability rates are set by the government and uniform across the country. Other coverage rates were also fixed, but insurers sometimes offered discounts and other inducements to buy, such as gas cards or online shopping coupons.

Premium for vehicle damage and theft was based on the new vehicle purchase price, a fact that upsets policyholders whose claims are settled based on the depreciated cost of their vehicles. Eligible policyholders could also receive discounts for a good driving record and for buying via the Internet or through telemarketing, which resulted in fewer overhead costs than going through an agent. There were 13 other rating factors, which all insurers use.

A new rating system, taking effect June 1, 2015, in one-fifth of the country (the six pilot provinces), creates a base rate by loading industry-wide expected losses with company-specific expenses. Insureds will still receive discounts for their driving records and ones based on the distribution channel through which they purchased. Premium for vehicle damage is now linked with actual cash value and vehicle make and model, but other underwriting factors will be allowed and can vary by insurer.

China is also overhauling its solvency regulation, said Bo Huang, FCAS, a senior manager with KPMG China, and is becoming one of many nations examining solvency in the wake of the 2008 financial crisis.

China has developed a system, known as C-ROSS (China Risk Oriented Solvency System), that its leaders believe could become a standard, particularly for emerging markets.

“It’s a cross,” Huang said. “We’re at a crossroads of the whole industry’s growth.”

The new standard is expected to take full force in January 2016 (running in parallel with the current solvency regulation in 2015). They replace a system Huang said was “not very scientific,” in which insurers were allowed to write $4 of net premium for every $1 of surplus held. In the United States, the same ratio is closer to 1:1.

The new standard splits “supervisable” risks that regulators are good at addressing from the ones better handled by market mechanisms.

The supervisable risks are split between quantifiable ones, like insurance risk, and unquantifiable ones, like reputation risk. Another class of supervisable risks is control risk. For emerging economies like China’s, Huang said, it is even more important to watch how companies control their risks. Good risk management may result in a reduction in regulatory capital requirement; poor risk management can result in a capital add-on up to 40 percent.

There’s also a risk element that requires systemically important insurers to set aside more capital.

The solvency and rate regulation changes mean most insurers are hiring risk managers, accountants and actuaries, Huang said. “The job market for actuaries in China is very good at the moment; a main reason is thanks to C-ROSS and auto rate reform.”

James P. Lynch, FCAS, is chief actuary and director of research and information services for the Insurance Information Institute in New York.