Actuarial Valuation Research On Health Insurance

Since China's administration resumed the insurance business in mainland in 1980s, China's insurance business developed with a very high speed. In China, the traditional life insurance took nearly 20 years to exceed the non-life insurance with the index of total premium income per year. According to a forecast, the total premium income with new businesses of the health insurance will exceed the life insurance in the next 10 years in China insurance market. Which means that the coming 10 years is a crisis period for the health insurance business development. For those who want to devote themselves into the career of health insurance, it's a very rare chance to make their dream of success come true. Though there is a very bright future in China health insurance market, we should also notice the challenge we may face in the health insurance market. This paper takes the issue of actuarial valuation on health insurance into a systematic research for the first time.For the need of internal or external user, the information such as how much liabilities/assets the insurance company owned, how about the company's capital adequacy, and what's the real value of a health insurance company, was required in the daily operation of a health insurance company. Not only the internal user but also the external user can't get those information above without the help from actuaries to do a mass of actuarial valuation work. In the author's opinion, the main actuarial valuation items are faced with the specialized health insurance company can be summarized into four parts. There are valuation on liabilities, valuation on assets/liabilities match, valuation on capital adequacy and valuation on the company's value. This paper explains those four parts of actuarial valuation respectively. The main purpose of this paper is that the reader can understand the health insurance company how to do those actuarial valuations in practice. The author analyses some actuarial valuation items differences among different countries'practices, and the advantages and disadvantages among those different practices, and then the author show his own suggestions on actuarial valuation based on the fact of the China health insurance market. Further more, the author takes those mature practices of actuarial valuation in life insurance and non-life insurance which can also fit to the practices of health insurance into consideration when the author constructs his own framework for health insurance actuarial valuation. However, for those valuation aspects are unique in health insurance, the author also explains clearly and particularly. Such as the provider liabilities in the health reserve valuation, the cash flow test in the chapter of assets valuation, and risk-based capital method in the capital adequacy valuation, etc.The main content and the structure of this paper are as follows:Chapter one is an introduction to the background, significance and methodology.Chapter two discusses the health reserve valuation. Firstly, the author analyzes the main impact factors and processes in health reserve valuation. Secondly, the author classified the health reserves into four catalogs based on the health insurance's specialty, which are claim reserves, contract reserves, provider liabilities and premium deficiency reserves. Based on this classification, the author discusses the notices for each reserve in practices.Chapter three mainly focus on the assets/liabilities match valuation in the health insurance company. The author holds the opinion that the health insurance company also confronts with the dis-match risk between its assets and liabilities, therefore it's needed to take actuarial valuation on the company's assets periodically. The author introduces the method of cash flow testing into the health insurance asset valuation to test the dis-match risk between assets and liabilities according to the unique characteristic of health insurance.Chapter four takes a lot of attentions on the issue of the capital adequacy valuation on the health insurance company. In the opinion of the author's, as the need of external supervisor, as the need of protecting the rights of the beneficiary and as the need of potential investors and other information user, that the health insurance company should take capital adequacy valuation periodically.Chapter five mainly focus on the valuation on health business for mergers and acquisitions (M&A).Recently, both in China's health insurance practices and theories are lack of systematic research on the health insurance actuarial valuation. The author provides some new ideas, including (1) Systematically research on the health insurance actuarial valuation for the first time, (2) The introduction of provider liabilities in health reserve valuation, (3) The introduction of cash flow testing (CFT) method in the ALM, (4) The introduction of risk-based capital (RBC) in capital adequacy valuation for health insurance business, (5) The prospective research on the valuation on health business for mergers and acquisitions (M&A).Confined by the author's capability of knowledge and the limited time, it's definitely that this paper is not perfect. This paper just provides the reader a framework about the issue of actuarial valuation on health insurance.