(Yicai) March 20 -- China's National Financial Regulatory Administration has set up a new risk rating system to grade and supervise life insurance companies, with the worst-rated firms to face restructuring, takeover, or market exit.

Life insurers will be rated Grade 1 to Grade 5 and Grade S, according to the policy document released by the NFRA on March 18. Grade 5 firms will be at the highest risk and face stringent supervision and can be restructured, taken over, or forced to close. Those in the restructuring, takeover, market exit, or substantive stage of risk disposal will be classified as Grade S.

The new system will enhance life insurers' risk identification and early warning capabilities and guide them in forming a development model suitable to their level of risk, according to a source at the NFRA.

Life insurers will be rated and graded based on six categories: corporate governance, business operation, capital utilization, asset and liability management, solvency, and other factors, including compliance and reputational risk.

Corporate governance and capital utilization will each count for 22 percent of the grade, while the other four categories will have a 14 percent weighting each. In addition, there is a bonus mechanism for fulfilling environmental, social, and governance responsibilities, giving extra points to companies offering green and inclusive insurance.

The grading will be done on an annual basis, according to the policy document.

Editors: Tang Shihua, Martin Kadiev