Research On Asset And Liability Management Issues For Insurance Firms

With the steady and rapid development of Chinese Economy, the Chinese insurance industry has gotten an unprecedented chance to develop, which has resulted in the expansion of industry scale and yearly enhanced profits. Faced with the complicated market environment and heated competition, the managerial problems in the operation of insurance companies has appeared gradually, such as deficiency of solvency, loss of interest spread and low efficiency of insurance investment. These problems can be generalized as the problem of assent and liability management (ALM), which is key element to influence the existence and development of an insurance company. Generally, each insurance company can appropriately arrange the assets and liabilities to decrease the risk of solvency and increase the profits. However, most of Chinese insurance companies lack advanced and full system of ALM and effective methods for ALM, consequently the problems above have not been resolved. So how to enhance the profits from investment, keep good solvency ability and decrease the level of ruin probability are the necessary choices for each insurance company. To solve the problems involved, the paper makes an immunity model against interest rate risk with embedded option, and introduces the combination method of VaR and ruin probability into the ALM, and finally studies the problem of optimum assets allocation for insurance companies, the details are as follows:Firstly, with the embedded surrender option viewed as the interest rate derivative and method of no-arbitrage analysis and binary tree, the surrender option is priced. Moreover the paper suggests the method of discount deduction to eliminate the impact of surrender option on the liabilities pricing, based on which the interest rate risk immunity model is set up to adjust the combination of assets and liabilities intertemperally against the interest rate risk.Secondly, for the problem of ALM in non-life insurance companies, the ruin probabilities are computed under different claim distributions. With combination method of VaR and ruin probability, the paper finds that the impact of initial reserve fund on ruin probability under different claim distributions are obviously different in the beginning period by the comparison analysis. Moreover the ruin probability model with the VaR limitation is created to get the insurance products with different technique parameters, which supply the theoretical basis and technique support for the insurance companies to control the risk of ruin and diversify products effectively. Finally, the impact of franchise and the claim limitation on ruin probability are analyzed.Thirdly, with the consideration of mortality of insured people, the stochastic optimization model for asset allocation is set up within the frame of stochastic interest rate. By solving of the mode under different utility functions, the paper argues that the strategies of asset allocation under different utility functions are completely different from each other.