Chinese insurers hurt by growth, absence of better solvency standards.

Chinese insurance companies are facing serious solvency issues, following rapid growth in both the nonlife and life insurance markets that was not supported by sufficient improvements in regulatory standards.

Research presented at the inaugural meeting of the World Risk and Insurance Economics Congress in Salt Lake City showed Chinese insurers and regulators are now trying to catch up to the blistering market growth with improved solvency measures.

Liu Xiaojun, a graduate student at Central University in Beijing, presented a paper she co-wrote with colleague Chen Dan on the solvency of China's insurance companies. According to Liu, the Chinese insurance industry is characterized by robust growth and poor solvency among domestic insurers, a situation the government regulator, the China Insurance Regulatory Authority, is determined to improve. "Chinese insurers have attracted attention worldwide," said Liu. "So the CIRC has become focused on ... solvency."

Research by Liu and Chen found there has been improvement among domestic direct insurers--the subject of their paper--since the market began to be liberalized in 1997.

Finances Improve For Chinese Insurers

Since 1997, when the market liberalized, financial stability has grown among Chinese writers.

Unhealthy Life Insurers:

In 1998: 40%

In 2003: 34.5%

Unhealthy Nonlife Insurers:

In 1998: 80%

In 2003: 44.4%

Source: Central University research