| Application of insurance funds has come into a new era which features reformed management mode and broader investment fields in China.By the end of 2007,almost all the varieties in the securities market were available to insurance industry,and insurance investment scale expanded substantially.What the insurance supervisor and investors have to deal with is,on he one hand,how to promote the depth and quality of insurance industry's accesses into securities market,on the other hand,after 20 years consistent development,especially the completion of non-tradable share reform,Chinese stock market will come into a brand-new stage,and the launch of financial derivatives market also was put into agenda.Insurance industry is the most conservative investor in capital market,while financial derivatives market is the most risky sub-market in financial derivatives market,so seemingly there are contradictions between the two stuffs.When seeing at another angle,we may find the two conflicting factors are both risk assembler-then-transferer,we can say they function almost the same way in market economy system.So the question is at what extent can this pair of composites unifies and interacts & reaches a win-win? Here this paper tries to demonstrate the economic necessity and feasibility of insurance industry's welding with financial derivatives market from six angles,internal theoretic motivation of insurance industry's access into financial derivatives market,history review of practical motivation of insurance industry's application of financial derivatives in typical advanced countries,typical strategy and operation of financial derivatives among insurance institutes,econometrical tests on the effect of insurance industry's application of financial derivatives,macro and micro risk control in the application of financial derivatives. Based on these researches and considering the specific situation in china,the author also designed a mechanism on insurance industry's welding with financial derivatives market.Regarding theoretical motivation of insurance industry's accesses into securities market, combining traditional enterprises' motivation on derivatives application and insurance industry's features,the author elaborated special internal theoretical motivation of insurance industry's application of financial derivatives from three major angles,avoiding financial distress, maximizing policy holder's utility,and satisfying management's egocentric motivation.My points of view are as follows:firstly,expectant cost of insurance company's financial distress is very high,so they have strong motive to try various low-cost derivatives to prevent financial distress. Secondly,under the rational premise of maximizing policy holder's utility,policy holder's special sensibility on insurance company's default risk,pressure caused to insurance institute's financial management by the status of policy holder and also debtee,insurance institute's self-intensification mechanism on default expectation will,in reverse,make insurance institute go to find advanced tools for hedging.Thirdly,with the progress of insurance institute's shareholding reform and perfecting of manager incentive and restraint mechanisms,insurance institute's desire to the application of financial derivatives will stand out most of the time.As regard to practical motivation of insurance industry's successive access into financial derivatives in typical countries,firstly,the author took the United States as an example,reviewed the economic and financial environment which American insurance industry faced during their operation in the late 1980s,then summarized the seven major motivations which enabled American insurance industry to engage in financial derivatives market.The seven major motivations are as follows:risk premium and financial intermediary attribute of insurance industry, innovation of insurance products,volatile fluctuation of financial assets price,watchdog's regulation pressure,the change of the financial report rule and booming financial derivatives in 1970s.Secondly,the author also pick up the datum of American insurance industry's application of financial derivatives in the past few decades,and also carry out statistical analysis on the figures,study the relative companies' features,variety preference and purpose on financial derivatives usuage in order to find an inherent law.Thirdly,to summarize nine purpose,the anther furtherly clarifies the rationality of the financial derivatives application by insurers.The author picked up operation data of American insurance companies which get listed in NYSE,AMEX,Nasdaq and OTCBB as sample statistics,chose explained variable and explaratory variable according to its operation attributes to build an econometric analysis model,and use Panel Data method to carry out econometric test and sensibility analysis.According to the research results,market value of those insurance institutes which used financial derivatives increased compared with those not used.Meanwhile it did bring positive effects to specific indicators including ROA,premium income per share,ROE,EPS etc.All of these econometric test result provides logical support to insurance industry's welding with financial derivatives market,from both the micro level and macro level.On macro and micro risk control in the application of financial derivatives,the author researched major risk control issues by means of decision tree analysis.On the macro regulation level,firstly,he summarizes and compares basic application mechanism and attributes of financial derivatives regulation in developed countries.Secondly,according to IAIS's questionnaire,he compares specific regulations on application of financial derivatives among insurance institutes in all countries and areas,induces laws behind it.Lastly,he compares requirement on information disclosure rules of financial derivatives made by major international accounting organizations and insurance supervisor in developed countries.Also,he takes Canada as an example,discusses key points in information disclosure specification,combining insurance regulation and accounting postulates.On the micro level,he demonstrates common principles on inner management of insurance institutes which get involved with financial derivatives among the world and major international accounting organizations.Based on this and IAIS's "regulatory standard on insurance constitutes's engagement of financial derivatives",he elaborates essential factors during control process in risk management and guideline of function setting in insurance company's inner organizations,and fundamentally designs inner constitutes function setting in insurance companies.Lastly,the author reviews development history of Chinese financial derivatives market and insurance investment structure change in recent years,makes a comparison with developed countries like the United States and Japan.And elaborates necessity of Chinese insurance industry's welding with financial derivatives market from three major angles:the meaning of insurance industry's access to development of Chinese financial derivatives market,the meaning of Chinese financial derivatives market development to current assets and debt management in current insurance industry.Then he make suggestions about the mechanism of Chinese insurance industry's welding with financial derivatives market,its focus are as follows:1.Regulation on financial derivatives application institute,usuage proportion,strategy,quality and legal risk during its application etc.2.Requireme on information disclosure of financial derivatives 3. Establishment of a perfect inner risk control mechanism in order to strengthen control over derivatives positions.Among those focus,he puts forward three-stage strategy of insurance industry's accesses into financial derivatives market,suggests a regulation guideline on specific information disclosure of financial derivatives,summarizes the three level and four parts that a perfect risk management system should have.
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