Beijing, (NNN-XINHUA) : China’s insurance regulator has flashed a flashed red alert on risks facing the industry, saying insurance companies must guard against liquidity risks with regular cash flow tests.

The China Insurance Regulatory Commission (CIRC) said in a circular issued here Sunday that the companies must follow and analyze changes in the macro-economy and in the stock and bond markets.

“A prudent investment scheme must be established to strengthen asset and liability management and to avoid using return on investment (ROI) 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 among industry players.

China’s top anti-graft authority earlier this month announced that Xiang Junbo, the chairman of the CIRC, was being investigated on suspicion of a serious violation of the code of conduct of the Communist Party of China.