China's insurance regulator has stepped up the regulation of insurers' assets and liabilities by releasing a new set of rules, aiming to reduce the sector's exposure to risky assets and curb potential liquidity risk resulting from aggressive business strategies.

The new rules, which are subject to a one-year trial period, include performance and capability assessment of insurers through a rating system and a requirement for insurers' asset-liability condition and management reports, according to the China Insurance Regulatory Commission, or CIRC.

"The complicated interest rate environment and intensified industry competition has led to greater risks as insurers are facing rising volatility in their investment returns and relatively rigid cost for their liabilities," said Jia Biao, deputy director of the department of insurance fund operation at the CIRC.

Some insurers' aggressive business strategies, coupled with ineffective corporate governance structures, have exposed them to greater risks and liquidity issues, Jia added.

During the trial period, insurance companies are required to formulate asset-liability management reports and submit them to the regulator within a month following each quarter, according to the CIRC.

The regulator said it will also categorize the insurers into four rating groups based on their business assessment and it will apply differentiated regulatory policies to them.

Since 2017, the CIRC has tightened regulation and scrutiny of the industry, including the insurers' shareholding structure, their outbound mergers and acquisitions and the sales of risky insurance products.

Last week, the regulator imposed penalties on four large property and casualty insurers, including fines and a three-month ban on taking up new commercial motor business in some regions and provinces.

The penalties sent a strong signal of the regulator's tighter crackdown on rule violations and the determination to hold insurers' management accountable for misbehavior and poor business practices.

"We expect that the CIRC will continue to tighten its supervision of the sector," said Stella Ng, a senior analyst at credit rating agency Moody's Investors Service.

"This tighter scrutiny will improve the industry's underwriting discipline, competitive behavior and operating efficiency," Ng said.

By the end of 2017, China's insurance industry had total assets worth 16.8 trillion yuan ($2.65 trillion), up 10.8 percent from the beginning of the year, according to official data.