Study On The Interest Rate Risk And The Management Of The Chinese Life Insurance Industry

As an industry gathering and diversifying risks, life insurance is not only full of the same risks with other industries, but also facing the special risks determined by its own operating characteristics in its operating process. Due to the uniqueness of the life insurance product pricing mechanism, the long-term nature of the huge debt and the option in the police, these determined that the interest rate factor in the life insurance business throughout the entire process and interest rate risk is no doubt one of the largest risks in life insurance industry. In particular, as China's market-oriented interest rate reform, the life insurance industry will inevitably face the impact of interest rate risk caused by frequent fluctuations in interest rates. Fluctuations in interest rates will trigger a potential threat to the growing prominence. Since 1997, seven Japanese life insurance companies have bankrupted one after another, which is a precedent. Therefore, we can only conduct an in-depth study at this stage of the formation mechanism of interest rate risk in Chinese life insurance industry and a quantitative analysis on the adverse impact of the life insurance industry also can be a positive response to proposed effective risk management measures. And it will be helpful for the Chinese life insurance industry to develop steadily and healthily. This is the starting point and purpose of this paper.On the basis of elaborating content of interest rate risk in the life insurance industry, this paper discussed comprehensive theory of the formation mechanism of interest rate risk in the life insurance sector, as well as specific forms of expression. The paper further does the situation analysis to depict quantitatively and empirically analyze the condition of assets and liabilities risk of life insurance industry. At last, through drawing interest rate risk management experience from the life insurance industry in Western countries, we improve the management of our interest rate risk.This paper is mainly divided into three chapters:Chapter I is the basic theory of interest rate risk in the life insurance industry. First, we explore the meaning of interest rate and interest rate risk. Second, we focus on the formation mechanism of interest rate risk in the life insurance industry and think the life insurance business is closely related to the formation of the special interest rate risk, which is mainly included three causes: the uniqueness of the life insurance product pricing mechanism, the long-term nature of the huge debt and the option in the police. Specifically, the formation mechanism of interest rate risk includes: fluctuations in interest rates would affect the balance of supply and demand of the life insurance market and make that life insurance products will have a price effect and substitution effects. Meanwhile, interest rate fluctuations will also affect the value of the liabilities and the assets as well as the matching assets and liabilities. At last, on the basis of this, we explore the form of interest rate risk in the life insurance industry, including: balance risk, scheduled interest rate risk and match of asset and liability risk.Chapterâ…¡of this paper is a core component and it is also the innovation of the paper. Combining market-oriented interest rate reform in China at the present stage, we empirically analyzed of Chinese current interest rate risk in the life insurance industry in the process of falling interest rates falling and rising. First, we analyses positively the influence on the indebtedness of our life insurance, brought about by recent years'continual interests-rate cut, and depicts quantitatively the exposure level of the reserve fund to the interests-rate risk, which prepares the conclusion that when interest rates fall by 1%, the rate of Chinese life insurance industry increases 4.95%. On the basis of this, the paper further does the situation analysis and stress test to the condition of assets and liabilities of an insurance company at the end of 2005. The result is turned out to be that when interest rate declines, the value of Chinese life insurance companies'liabilities has a greater increase and profits drop sharply, which greatly reduces their solvency. When interest rate rises, although life insurance companies increase profits, the scale of their debts has the sharp decline, which means a substantial reduction in premium. Overall, a decline in interest rate impacts of Chinese life insurance companies'debts more than the impact of rising interest rate. Second, from the product pricing, the product substitution and the use of funds, we empirically analyzed scheduled interest rate risk, which prepares the conclusion that when interest rate rises, the Chinese life insurance products substitution effect is more than the price effect. At last, from the term structure of interest rates, investment funds and the matching of scheduled interest and expected rate of return, we empirically analyzed match of asset and liability risk, which prepares the conclusion that Chinese life insurance industry's long-term liabilities are far greater than long-term investment and investment rate of return is lower than the scheduled interest.Chapterâ…¢of this paper as well as the end, we use the experience of developed countries to put forward proposals to improve Chinese interest rate risk management. First, we inspect the United Kingdom, the United States, Australia advanced management experience of interest rate risk in the life insurance industry, and then, on the basis of modeling management experience of interest rate risk management experience from developed countries, and according to the practice of a market-oriented interest rate reform, we put forward proposals to improve Chinese interest rate risk management. On the basis of this, the proposals include: vigorously develop security-types for training healthy consumer attitudes; actively develop of new life insurance products to defuse the interest rate risk; establish mechanisms for the change in interest rates expected; Promote market-oriented reform of the life insurance rates; strength the management of the company assets and liabilities match; improve the management level of life insurance companies and the building of the contingent of life Insurance companies.