China's insurance regulator on Sunday flashed red alert on risks facing the industry.
Insurance companies must guard against liquidity risks with regular cash flow tests, noted a circular issued by the China Insurance Regulatory Commission (CIRC).
They must follow and analyze changes in the macro-economy, stock and bond markets, noted the document.
"A prudent investment scheme must be established to strengthen asset and liability management and to avoid using return on investment as the only investment goal and performance indicator," it added.
Insurers must also improve capital management and prevent capital from being used for other purposes. Internal risk control systems must be improved, the CIRC stressed.
China's financial regulators have recently strengthened oversight and issued stiffer punishments to remedy shortcomings and promote efficiency.
China's top anti-graft authority earlier this month announced that Xiang Junbo, chairman of the CIRC, was being investigated on suspicion of a serious violation of the code of conduct of the Communist Party of China.
