China Banking and Insurance Regulatory Commission recently issued the "Agricultural Insurance Actuarial Provisions (Trial)" (hereinafter referred to as the "Provisions"), which will take effect from September 1, 2023.

The Provisions apply to agricultural insurance businesses such as planting, breeding and forest.

Specifically, the Provisions make it clear that the standard formula for agricultural insurance rates is: rate = base rate × rate adjustment factor. Where, the benchmark rate = benchmark net risk loss ratio/target loss ratio, target loss ratio =1- additional rate. The rate adjustment coefficient of financial subsidy products ranges from [0.75 to 1.25], and the rate adjustment coefficient of other products ranges from [0.5 to 1.5].

The China Banking and Insurance Regulatory Commission said that by clarifying the use of the three elements of the benchmark pure risk loss rate, the additional rate and the rate adjustment factor in the agricultural insurance rate, the agricultural insurance price can be managed around the risk. The floating range of the rate adjustment coefficient of financial subsidy products is limited to [0.75-1.25], and the floating range of other products is limited to [0.5-1.5], which is conducive to the stable and sustainable development of agricultural insurance.

The Regulations also propose that for products whose agricultural insurance industry benchmark pure risk loss rate has been released by the China Association of Actuaries, the benchmark pure risk loss rate of the company's pricing should use the industry benchmark. The additional rate for products with financial subsidies shall not be higher than 25%, and the upper limit for other products may be appropriately raised. An insurance company shall, in accordance with the principle of matching the premium rate with the risk of the subject matter and the operating cost, reasonably determine the premium adjustment coefficient and additional premium rate, and conduct premium adequacy tests.

In terms of rate backdating and correction, the "Provisions" make it clear that insurance companies should establish rate backdating and correction mechanisms, dynamically monitor and analyze the deviation between the premium actuarial assumptions and the company's actual operation, reasonably consider the impact of major disasters, and adjust agricultural insurance rates in a timely manner. For products that use the industry benchmark net risk loss rate, insurers' rate adjustments are limited to rate adjustment factors and surcharges. China Association of Actuaries should strengthen the study of agricultural insurance risk regionalization, build agricultural production risk map, publish the agricultural insurance industry benchmark net risk loss rate, and according to the actual market risk situation, timely update the calculation of agricultural insurance benchmark net risk loss rate, and establish a normal mechanism for industry benchmark net risk loss rate adjustment.

In terms of the assessment of insufficient premium reserves, the Provisions require that insurance companies should improve the insurance premium adequacy test process for agricultural insurance and evaluate the insufficient premium reserves. The insurance company shall assess the insufficient reserve for agricultural insurance premiums at the end of each year in accordance with these provisions, and report the assessment results to the regulatory authority of the company before March 31 of the following year.

The Regulations also specify the duties of the chief actuary. Specifically, the chief actuary of an insurance company, as the first person responsible for the actuarial management of the company's agricultural insurance, should strictly comply with the supervision provisions and earnestly fulfill the responsibility; At the same time, the seasonal and regional characteristics of agricultural insurance operations should be fully considered in the process of reserve assessment and product pricing of agricultural insurance, and the loss of major disasters should be carefully estimated. The chief actuary of an insurance company shall report to the regulatory authority in a timely manner the risk of adverse progress in the backtracking of agricultural insurance reserves or continued underpricing.

Managing Editor: Yang Xiting