Research On Life Insurance Securitization And Its Application Prospects In China

Since the 21st century, with the various finance innovation leading the developing trend of global financial industry, kinds of financial products have sprung up and occupied the every field of financial system, among which the application of securitization tools become the typical model of financial innovation. After 20s’development, derivative tools of securitization have made groundbreaking achievements in the manufactory industry and banking systems. A revolution of new financing method is around the corner. Comparing with the manufactory and banking system, the securitization technology in insurance industry is still lagging behind. In pace with the gradual expansion of scale and the increasing risk in insurance industry, the insurance companies has been restricted by its lacking of solvency, particularly in the ability of insurance accepting. People turn their eyes into the developed security market to find the support for the reinsurance.In recent years, along with the promotion and application of financial derivative tools, securitization tools of insurance has began to take shape, including the catastrophe bond, catastrophe futures. Furthermore, actually these tools have shown their powerful function in sharing the catastrophe risks and enhancing capital liquidity. Comparing with the prosperous development of insurance securitization, the technology of life insurance securitization has not got enough attention for a long time. Until the publication of《Securitization of Life Insurance Assets and Liability》by Cummins in Wharton Financial Institutions Center in 2004, the prelude of research on this field has been uncovered. Taking advantage of the in-depth research on the financial theory and the exploration in the reality, life insurance has not only formed brand-new method of financing, but brought up the revolution in the field of risk management and transferring. During this period, it has undertaken the severe test from the financial crisis in 2008, whose pricing model and risk control are getting into mature. Facing the frequent severe natural disasters, such as earthquake, tsunami and mud avalanche, life insurance securitization is capturing people’s attention by its characteristic in transferring catastrophe risk. It has become the effective choice of the insurance companies to realize the risk-transferring.Besides the function of transferring risk, life insurance securitization can improve the capital liquidity significantly. Being different from the other financing products, after long-time accumulation, the life insurance policy can’t circulate and be liquidated effectively, which make the high-value policy underestimated before the expiration of time limit. It to some extend restricts the capital need of the policy holders, lowers the efficiency of the capital circulation. However, the appearance of life insurance securitization solves the difficulty effectively. Through the active participation of the institutional investors, the market of life insurance securitization is enlarging in the European countries. It has already possessed considerable scale nowadays. The potential market of the securitization transaction in the global area has reached 400～500 billion till 2009. According to the current data--6.3 billion, it has tremendous growth potential in the future. Among the 6.1 billion reserve securitization bond issued, only 18% extra reserve has been securitized. We estimate that the extra reserve can reach 72.5 billion this year,80～100 billion in 2016.Although affected by the global financial crisis in 2008, the number of newly-issued life insurance bond has decreased to 1 billion; the total value of undue life insurance bond is about 60% of the overall securities connected with insurance.In front of the prosperous development of life insurance securitization in the international insurance market, whether our country has the necessity and ability to launch this business after 30 years’economic revolution? This paper has studied the application prospect of launching life insurance securitization comprehensively, combining the current development situation of our country’s insurance industry. Starting from the necessity and feasibility of this business in our country, we try to find out a successful path of developing the life insurance securitization. Moreover, this paper proposes the viewpoint of taking the mortality risk bond as the target of promoting the life insurance securitization, laying sound theoretic and realistic foundation for the future development. This paper aims at putting forward the application analysis and suggestions for the development of life insurance securitization by explicit statement about the principle, operating mechanism, pricing strategy and risk control, combining the current situation of life insurance and capital market in our country.There are five parts in this paper; the first part is mainly about the background and significance of this theme. Combining the current research situation in our country and overseas, it puts forward the research context and direction, clarifying the purpose of this research. The second part analyzes the life insurance securitization comprehensively after the systematic discuss on related concepts, meaning, principle, basic structure, operation model and type of products. The third part makes detailed mathematical reasoning and deduction on the corn of the securitized products---pricing strategy and risk control. This part is the mathematical basis of the whole paper. It also improves the structured life insurance securitization system. The fourth part is established on the current situation of insurance market and capital market in our country, discussing the necessity and feasibility of the launching of life insurance securitization. Moreover, it tentatively concludes that our country has already own the precondition of this business. The fifth part proposes the suggestions for the development of life insurance securitization from the perspective of path choice, system improvement, regulation enhancement, talents reserve etc. Drawing on the international experience, the paper puts forward that death risk, especially the death rate risk bond should be considered as the target of life insurance securitization, laying theoretic and practical foundation for the application in our country.The innovation of this paper lies in (1) operational significance of the theme. In recent years, frequent natural disasters lead to the rapid increasing trend of the catastrophe risk and the extreme death rate risk. By introducing of the life insurance securitization, we can relieve the pressure of deficient solvency for the domestic insurance company manfully. (2) Proposing the application target of the life insurance securitization in our country. Based on the conclusion that our country has already owned the precondition of development this business, drawing on the international successful experience, the paper puts forward that the death risk, especially the death rate risk bond should be considered as the target of life insurance securitization, which is laying theoretic and practical foundation for the application in our country.