China removes cap on life insurance interest rate

Strengthens market-oriented reforms in its financial system.

The China Insurance Regulatory Commission (CIRC) has eased controls on interest rates for standard life insurance products by removing starting today the 2.5% upper limit on pre-determined interest rates of standard life insurance products.

Under the new insurance regulation, insurance companies can set their own rates in line with prudent principles. For risk prevention purposes, however, a new cap of no more than 3.5% will be applied for the statutory reserve requirement assessment ratio of standard life insurance products.

The measure represents China's newest effort in interest rate liberalization, following the People’s Bank of China’s key move on July 19 to loosen its grip on bank lending rates.

Official CIRC data show that the assets of China's insurance industry totaled US$1.27 trillion in June, up 7.2% from the level in 2013.

The rigid 2.5% cap, made valid since 1999, has resulted in severe homogeneity in life insurance products.