A Research On Asset-liability Management Of Insurance Companies Under Multi-financing Mode

The internal demand of insurance companies in China to further improve the quality of operation and management,and the continuous supervision and guidance of insurance regulatory authorities to improve the ability of asset-liability management of insurance companies,are making the ability of asset-liability management increasingly become the basic ability and core competitiveness of the sound operation and development of insurance companies.In this context,how to establish a scientific and reasonable asset-liability management model of insurance companies to adapt to the actual operating environment has become an urgent problem to be solved.On the other hand,a variety of financing mode,including endogenous financing,common stock,preferred stock and debt capital instruments,play an irreplaceable role in the operation of insurance companies due to their unique role in supplementing capital,maintaining solvency and financial leverage,and will also have an important impact on many aspects of asset-liability management of insurance companies.However,previous studies on the financing and asset-liability management of insurance companies always separated them.This makes the traditional asset-liability management model,which does not consider the financing activities,have a great limitation in the face of the actual operating environment of insurance companies which play an important role in the diversified financing system.Therefore,it is necessary and urgent to deeply analyze the influence mechanism of financing activities on asset-liability management of insurance companies and establish asset-liability management model of insurance companies under multi-financing mode.which is also the purpose of this paper.After decades of development,the theory of asset-liability management has become a key component of insurance company’s operation and supervision system.Asset-liability management of insurance companies is a strategic continuous process to coordinate the assets and liabilities of enterprises,its main objectives should be to maximize the company’s longterm value or current net profit,meet liquidity requirements,meet solvency requirements,and improve and stabilize the company’s credit rating.From the development stage of asset-liability management theory of insurance companies,asset-liability management of insurance companies has gone through unilateral driven asset-liability management stage,parallel assetliability management stage and asset-liability management stage under the framework of enterprise risk management.asset-liability management under the framework of enterprise risk management represents the future development trend of asset-liability management of insurance companies.The main mode of asset-liability management of insurance companies are cash flow matching,duration gap management,immune technology,stochastic programming and dynamic financial analysis.After comparing different mode,the author’s viewpoint is that stochastic programming and dynamic financial analysis are more suitable for the modeling of asset-liability management in complex environment.As a centralized institution of risk,insurance companies need sufficient capital to absorb unexpected losses.Therefore,it is necessary for insurance companies to carry out financing.From the perspective of the availability of financing mode and the efficiency of capital use,insurance companies should not only pay attention to equity financing,but also use a variety of financing mode,such as bonds,preferred shares and so on.The financing mode of insurance companies can be divided into endogenous financing and exogenous financing,and exogenous financing can be divided into exogenous equity financing and exogenous debt financing.Different financing mode are included in different levels of capital according to their existence,sustainability,secondary and non mandatory aspects.The capital management of insurance companies refers to the management stage that takes capital as the management object and comprehensively determines the capital demand and capital supply mode.Its main contents include capital adequacy management and capital cost management.It is found that the level of credit rating is closely related to the level of financing cost and the relationship is relatively stable.After analyzing the influence mechanism of insurance company financing on assetliability management from four aspects of financial statement,asset liability matching,capital management and embedded value,the author holds the point that: 1.the financing decision of insurance companies is an important part of asset-liability management;2.asset-liability management is an important tool to realize capital management;3.these three should jointly serve the maximization of equity value of companies.Based on this point of view,this paper establishes an integrated analysis framework.Different from the previous stochastic programming based asset-liability management model of insurance companies,which can only make asset allocation decisions,this paper establishes a static decision-making asset-liability management model of insurance companies under the endogenous financing mode based on stochastic programming method,which realizes the two end linkage of assets and underwriting liabilities.In terms of modeling process,firstly,the basic elements of insurance company operation are established from three parts: underwriting liability end,asset end and dynamic change process of financial statements;secondly,the constraints of the model are established from five aspects: solvency constraint,duration gap constraint,capital utilization proportion constraint,liquidity constraint and other constraints;finally,the objective function of the model is given and a complete model is established.Based on the real market data and some parameter hypotheses,this paper also makes an empirical study on the model,in the solution results of the model: 1.The allocation proportion of the stock fund fluctuates greatly in each period,which is directly related to the large fluctuation of the return of the stock fund itself;2.Compared with the return on investment of the stock fund,the fluctuation range of the interest rate in the fixed-term bond market is lower,so the allocation proportion is always kept at a higher level and the fluctuation range is smaller;3.The term payment products are the backbone of life insurance company’s product sales,and their sales proportion is mainly affected by the limitation of solvency and liquidity level,while single paid products are the supplement of term payment products,and their sales proportion is also affected by the prosperity of the stock market;4.In terms of the duration gap,the duration of cash outflow from the underwriting liability end is significantly longer,making the duration gap of each period negative,but stable within the constraints;5.In terms of solvency and capital management,in the absence of exogenous financing mode,the growth of real capital depends on the accumulation of endogenous financing,so the endogenous financing capacity limits the growth rate of business scale;6.The change of interest rate in the fixed-term bond market has a greater impact on the results of the model than the change of return rate of equity funds,and the increase of the proportion of reduction in equity funds at the end of the period can effectively improve the operation results of the insurance company.Finally,according to the influence mechanism of insurance company financing on assetliability management,this paper establishes a dynamic decision-making asset-liability management model of insurance company under multi-financing mode.The model can make decisions on underwriting liabilities,assets and financing at the same time,and set up a value transmission chain of "insurance company’s operating condition-credit rating-financing costequity evaluation value".It has practiced the theoretical point of view that insurance company’s financing,asset-liability management and capital management jointly serve for the maximization of equity value.In addition,through the object-oriented design method,the advantages of dynamic financial analysis are combined with the advantages of stochastic programming to solve the optimal strategy,which provides a better modeling technical condition for the establishment of this model.From the perspective of modeling process: first,according to the sequence of parameter module,underwriting liability end module,asset end module,financing end module,financial statement module,asset-liability matching module,capital management module,credit rating module and value management module,the modeling of the underlying dynamic financial analysis system is completed;then,the dynamic decisionmaking stochastic programming model is established in four aspects of decision variables,constraints,objective functions,multi period overlap.Based on the real market data and some parameter hypotheses,this paper also makes an empirical study on the model,in the solution results of the model:1.On the liability end,insurance companies do not give priority to long-term term payment life insurance products and endowment insurance products,but mainly short-term term payment life insurance products.This is because the regular long-term life insurance products will significantly reduce the score of the insurance company in the credit rating business scale and growth sector,while the endowment insurance products will significantly reduce the score in the underwriting quality and profitability sector,thus reducing the equity evaluation value of the insurance company as a whole.2.On the asset end:(1)the insurance company holds a considerable proportion of cash to ensure sufficient liquidity;(2)the allocation proportion of the stock fund fluctuates greatly in each period,which is directly related to the volatility of the investment return rate of the stock fund itself;(3)Because the non-standard debt assets can improve the return on investment,even though they need to withdraw more minimum capital than the fixed-term bonds,the insurance companies still invest more non-standard debt assets;(4)the fixed-term bonds are still the main investment assets of the insurance company,its investment proportion has always been kept at a high level and the volatility is small.3.On the financing end:(1)with the gradual growth of the scale of the insurance company,the internal financing of the insurance company gradually replaces the financial support function of the exogenous equity financing;(2)the insurance company has issued a certain proportion of preferred stocks and debt capital instruments,among which all debt capital instruments are five-year debt capital instruments with shorter term,which is due to the lower financing cost;(3)the exogenous financing of insurance companies is an important supplement to the endogenous financing because of its financial leverage,but the exogenous financing will increase the financial risk,so it can not replace the endogenous financing.4.In terms of asset-liability matching,the insurance company’s duration gap after the scale adjustment,the difference between the comprehensive investment return rate and the debt capital cost rate and the weighted cumulative cash ratio index are obviously better than the minimum requirements of the model constraints,which shows that the model is effective in the aspect of asset-liability matching.5.In terms of capital management:(1)in the actual capital,there are more core tier one capital and subsidiary capital,and less core tier two capital,which is due to the limited amount of preferred stock issuance that can supplement tier two capital;(2)in the minimum capital,the minimum capital of insurance risk accounts for more,followed by the minimum capital of market risk,while the minimum capital of credit risk is the least,which is due to the fact that most of the underwriting liabilities are traditional insurance products and relatively low sensitivity to interest rate changes;(3)from the perspective of solvency adequacy ratio,the core capital of insurance companies is relatively tight,while the subsidiary capital is relatively loose,which shows that the insurance companies in the model lack the motivation to actively improve solvency;(4)the issuance of preferred shares and debt capital instruments by insurance companies can effectively reduce the overall financing cost.6.In terms of sensitivity analysis:(1)compared with surrender rate and expense rate,the increase and decrease of mortality rate in underwriting liability end have a much greater impact on the operation results of the model,which is due to the main underwriting of traditional insurance products;(2)the increase and decrease of market interest rate of fixed-term bond assets and market interest rate of non-standard debt assets in asset end have a more obvious impact on the operation results of the model,However,the increase and decrease of the return on investment of stock funds have little influence,which is related to the preference of insurance companies in the use of funds;(3)the change of the market interest rate of debt capital instruments in the financing end has a greater impact on the operation results of the model than that of the issuing dividend rate of the preferred stock,because the impact of debt capital instruments of insurance companies on the weighted average cost of capital is greater than that of preferred stock.7.The impact of the availability of financing mode on the results of the model:(1)the more diversified the financing mode of insurance companies,the higher the evaluation value of common stock equity;(2)the issuance of preferred stock and debt capital instruments can: 1)reduce the weighted average cost of capital of insurance companies;2)enlarge the underwriting leverage coefficient;3)increase the risk of interest margin loss;4)improve the net assets of insurance companies return rate;(3)the issuance of debt capital instruments will improve the liability ratio of insurance companies,while the issuance of preferred stock will reduce the liability ratio of insurance companies;(4)when there is only endogenous financing and exogenous equity financing,the asset-liability matching of insurance companies is better,while the issuance of preferred stock and debt capital instruments by insurance companies will reduce the quality of asset-liability management of insurance companies,and increase the operational risk of insurance companies.Therefore,while expanding the scale of financing,it is necessary to improve the level of asset-liability management to fully control the operational risks.8.The influence of credit rating weight setting on the solution results of the model:(1)to improve the business scale and the weight of the growth sector will enable insurance companies to increase the underwriting ratio of single payment products and reduce the underwriting ratio of time payment products,which will significantly increase the underwriting leverage coefficient of insurance companies;(2)to improve the underwriting business quality and the weight of the profitability sector will enable insurance companies to increase their underwriting leverage The proportion of time payment products to be underwritten and the proportion of single payment products not to be underwritten will significantly increase the value rate of new business;(3)improving the weight of asset and liability management quality will not significantly improve the performance of insurance companies in terms of term matching and income matching,but will make insurance companies more conservative in terms of cash flow matching;(4)changing the weight of key factors to insurance companies The solvency adequacy ratio of the company has little influence,which once again shows that the insurance company has not taken the initiative to improve its solvency;(5)the strategy of focusing on improving a particular aspect of operation has not considered the strategic effect of all aspects of operation in a balanced way,which also reveals that the operation of the insurance company is a process of balanced development,which needs to consider all key aspects of operation in a coordinated way.