China’s new solvency framework should improve insurers’ credit profiles, particularly among larger companies, Standard & Poor’s (S&P) says.

The country’s regulator is likely to finalise its China Risk-Oriented Solvency System (C-ROSS) within a month, with a possible final round of testing after that.

“We expect the solvency framework to become more sophisticated and comprehensive, as well as aligned with global regulatory standards, after the regulator has fully implemented the system in 2016,” S&P analyst Connie Wong said.

Chinese insurers rated by S&P have improved their governance and risk management over the past decade, but their risk culture, appetite and tolerance have yet to reach international standards, she says.

Industry challenges include the transition from a market focused on volume growth to one that values more technical and risk-based underwriting. This could take some time due to intense competition, increasing operation risks and catastrophe exposure.

Ms Wong says volatile investment markets, economic slowdown and an ageing population also create uncertainties, and the industry has a shortage of experienced and qualified insurance professionals.

C-ROSS will emphasise risk management control, transparency, oversight and quantitative risk assessment. S&P believes it will retain some China-specific qualities.

“C-ROSS is more aligned with the factors we consider in our credit assessments on insurers,” Ms Wong said.