| One of the important characteristics of modern life insurance industry is the two main businesses of insurance and investment. The liability of insurance makes the premium of life insurance companies becoming its liability fund. So it became an important issue of life insurance companies to keep and increase the value of its fund through investment in order to protect its solvency ability. After a period from no-existing, ignoring, disordering, adjusting, to the standard investment of life insurance fund, the life insurance companies have become the important organizational investor in the financial market of China. Many facts of domestic and international financial markets prove that the plenty return of investment always comes with risks. So it became a major problem of domestic life insurance companies to effectively manage the portfolio selection of life insurance funds under certain level of risk within the circumstances of economy and financial market in China.The research of life insurance fund investment can be divided into qualitative and quantitative research from their focuses. In the former field lots of achievements have been get on the characteristics, investment principles, risks, supervision of life insurance fund investment, which are developing through the practices of life insurance industry. In the later field, some mature models have been established and put into use. As been known that the decision of portfolio selection is a kind of activities concerning closely with the investor and investment circumstances, which means that the existing method can not be directly used on the domestic life insurance fund investment. Well at the same time the certain domestic research mainly focused on the principles.A portfolio selection model of life insurance fund was studied in this dissertation on the base of certain theories of life insurance fund investment. A model was established based on the situation of financial market and the management and supervision of domestic life insurance companies by using the portfolio theory and method of stochastic programming. The portfolio selection decision of China Life was analyzed by using the model. Then the model was adjusted to the effect of global financial crisis nowadays, thereafter certain portfolio of China Life was established. 1. Characteristics of life insurance fund investment1). Sourcing characteristics of life insurance fundLife insurance fund refers to the fund which are possessing, managing and controlling through the operation of life insurance companies, which can be divided into the owner benefit and liability funds. The former part is composed with capital, total reserve and surplus. The later part is the major part of life insurance fund which compose with liability reserves and fund of insurance consumers, which means its characteristics can mainly affect those of the life insurance fund. The long-term, supportability and saving characteristics of life insurance products can result in the liability, long-term stability and value-added characteristics of life insurance fund, which causes the certain term, return rate and risk constraints of life insurance fund investment.2). Motion characteristics of life insuranceBy the increasingly intensive competition of life insurance industry, the investment return is becoming the important benefit source of life insurance companies. Concerning the liability and valued-added characteristics of life insurance fund, some rules should be obeyed during the investment, such as the safety, return, liquidity and matching rules, which means that the objective of life insurance fund investment is to get more profit under certain level of risk by establishing proper portfolio.3). Risk characteristics of life insurance fund investmentAs a company focus on liability funds, the risks that life insurance fund investment always faces including not only the systematic and non-system risks but also the risk caused by the mismatching between asset and liability.There are three main approaches used to control the risks of life insurance fund investment in China, which make up the constraints of it. Firstly, separated accounts management; secondly, the limitation of investment channel, percentage and single-project-percentage; thirdly, multi-control of solvency ability.2. Relationship between financial market and life insurance fund investment As the clearly regulation of Insurance Law of the People's Republic of China and other policies, the channels of financial market can accept life insurance fund include the money, stock, debt, investment funds and exchange markets.1). Qualitative analysisAs a kind of important investment subject, the life insurance fund investments are increasingly influencing the financial market, because its stable source can help improving the scale of financial market. Also as professional investment organizations, the life insurance companies can help improving the efficiency of financial market.Financial market is the main arena of life insurance fund investment, because it can provide a good value-added method for it and can also disperse the risks by multiple portfolios.2). Quantitative analysisThe causal relationship between the financial market and life insurance fund investment was deeply analyzed by using the method of Granger. Conclusion: There are mutual casual relationship between the return rates of stock, investment funds and life insurance fund. There is casual relationship from the deposit rate and that of life insurance fund. There is not casual relationship between the return rates of debt and life insurance fund, which means that the government debts can be used as a good non-risk capital.By concerning the relationship among the return rates of financial products, Correlation and Principal Component methods were used to analyze their correlations and similarities. Conclusion: Three are high levels of correlation and similarities between the return rate of stock and investment funds, and the government and enterprise debts as well. So the control of their total percentages will be used as constraints in the model of this dissertation.3. Portfolio selection model of life insurance investmentAs a multi-stage decision making progress, the life insurance fund investment should concern not only the return of investment, but also the cash flow contains the premium income and outcomes such as compensate and tax. In this dissertation, multi-stage stochastic programming was used to establish the portfolio selection model of life insurance fund. By concerning the practices of domestic financial market and life insurance industry, the objective of the model was setting as'maximum the expected value of portfolio at the end of the investigation period, and the four constraints were setting as solvency, finance, portfolio percentage and nonnegative constraints. The Monte Carlo simulation on stratified sampling was used to generate the scenario. And the Bender's was used as the method of solution. Also the Holt-Winters index was used as the forecasting method.4. Empirical studyQuarterly data from 2004 to half 2008 of financial market and China Life, the largest life insurance company of China, was chosen to analyze the portfolio of China Life in 2009 by using the forecasting and stochastic programming models established in this dissertation. It concluded that China Life should keep government debts and deposit as main investment assets, keep the total percentage of stock and investment funds around 20%, keep the percentage of enterprise debt less than 1%. Concerning the global financial crisis and its effect to financial market and economy of China, the statistic principles of the financial products were reset to generate new scenario, on the base of which portfolio of China Life under financial crisis was established. It concluded that the percentages of government debt and deposit should be kept over 50% and around 40%, and the total percentage of stock and investment funds should be kept less than 10%, the percentage of enterprise debt should be kept less than 0.5%.
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