Overview
From 2026, the transition period for the insurance solvency regulatory rules (C-ROSS II) formally ended, and stricter capital and risk-measurement rules are fully in force. C-ROSS II was issued in December 2021 for a Q1 2022 start; firms heavily affected by the old-new switch were granted “one company, one policy” transition periods, extended several times, finally closing at end-2025.
With the transition over, capital-replenishment demand stands out. In 2025 the industry raised 145.472 billion yuan via equity, capital-supplement bonds and perpetual bonds; in H1 2026, only 10 insurers pursued shareholder capital increases (~8.328 billion yuan), while 12 insurers issued 15 capital-supplement and perpetual bonds totaling 31.41 billion yuan—perpetual bonds exceeding 60% of the total for the first time.
Background & Interpretation
1. Regulatory and Industry Context
Solvency regulation sets the comprehensive solvency ratio floor at 100% and core ratio at 50%, with sub-120% drawing focused review. Full C-ROSS II makes actual-capital measurement more prudent and risk factors stricter; some smaller insurers’ ratios near the 120% review line, lifting recapitalization pressure. It is also the institutional lever pushing the sector from scale- to stability-oriented operation, guarding against interest-spread and liquidity risk.
2. Core Drivers and Mechanisms
Insurers replenish capital via three routes: shareholder capital, capital-supplement bonds and perpetual bonds. Versus supplemental bonds, perpetuals have no fixed maturity and count toward core Tier-2 capital, and are favored in a rate-down environment—hence their H1 share above 60%. Under stricter rules, insurers must size business by “spend-to-income” and optimize asset-liability matching to cut capital consumption at the source.
3. Market Structure and Industry Impact
Tighter capital constraints will accelerate divergence: well-capitalized leaders with deep product reserves may gain share through the adjustment, while smaller, bank-channel-reliant and capital-tight insurers face product-switch and cash-flow pressure. Ratings, underwriting, accounting and actuarial advisors benefit from active issuance; investors must watch solvency metrics and instrument terms.
Implications & Outlook
Near-to-medium term, capital replenishment stays active, with perpetuals likely dominant. Watch post-full-C-ROSS II solvency distribution, smaller-insurer equity/bond scale, perpetual-bond coupons, and regulatory window guidance on reviewed firms.
Takeaways for Industry Participants
Insurers should plan capital ahead, balance growth with solvency, and optimize liability duration and asset matching. Underwriters and raters can capture issuance windows. Investors in insurer capital bonds should assess issuers’ solvency ratios, business mix and the sustainability of capital replenishment.
This column compiles industry information and shares technical perspectives; it does not constitute investment advice.