Research On The Effectiveness Of Solvency Supervisory Indicators Of Non-Life Insurance Companies In China

Insurance industry is a special one with high risk that specializes in risk operation and provides the risk safeguard to the policy holders. Insolvency of insurance companies will result in serious hazards, not only damaging the normal order of the insurance industry and people's life but also endangering the entire financial industry even the development of the National economy. Therefore, insurance supervision departments in many countries have taken the solvency supervision as the primary task in order to maintain the insurance market order, ensure adequate solvency of companies and promote the healthy development of insurance industry. Solvency supervisory indicators are one of the most important supervisory tools. Based on theories in insurance supervision and in accounting and finance, this dissertation conducted the research on the effectiveness of solvency supervisory indicators for non-life insurance, explored ways to improve existing supervisory indicators and presented corresponding suggestions. The dissertation on this subject has been developed in the following four parts:Chapter One systematically reviewed relevant researches from domestic and overseas on insurance solvency and elaborated the writing background and the writing significance. This paper will discuss two questions with emphasis use the methods that unified the theory and actual, the qualitative and quota analysis. First, whether the solvency supervisory indicators in China are effective. Second, put forward suggestions to improve the supervisory indicator system.In Chapter two, the basic concepts of solvency are introduced, such as insurance solvency, solvency margin, solvency supervisory indicators and what are those factors that influence non-life insurance solvency. Then this part introduced minimum solvency margin and solvency supervisory indicators adopted in the USA and England. The minimum solvency margin in England and the Risk-Based Capital Model in the USA both are the methods to calculate the minimum solvency, but the two have remarkable difference in the computation, the condidered risk and the company scale. The IRIS and the FAST both are solvency supervisory indicators, but the two have difference in the applicable scope and the effect. At last it presented the current solvency supervisory indicators of non-life insurance in our country and analysed the financial significance of every indicator.Chapter Three proposed the connotation of effect of solvency supervisory indicators and conducted an empirical research. The effect of solvency supervisory indicators includes three levels: the computational method and the parameters are compatible with China's actual situation. The double regulatory standards are consistent. Solvency supervisory indicators can recognise the solvency of insurance companies effectively. Then the chapter analyzed the effect of solvency supervisory indicators with the financial data of 21 non-life insurance corporations from 2001 to 2005. It first analyzed whether the calculation method and parameters of current solvency supervisory indicators are compatible with China's actual situation. The result demonstrated that the current minimum solvency margin and solvency supervisory indicators for non-life insurance profited from English and American to a great extent. The indicators and the parameters are are incompatible with China's actual situation. Then it analyzed whether the double regulatory standards are consistent. The result demonstrated that the regulatory standards about solvency sufficiency and the indicators are inconsistent. At last the chapter conducted an empirical research by a logistic model. The research result indicated that solvency supervisory indicators are effective as a whole, some indictors such as admitted liabilities to admitted assets, speed ratio have a effective explanation to solvency status.Chapter Four put forward suggestions to improve the supervisory indicator system and carried out an examination. First, Large-scale and small scale companies are discriminated and the minimum solvency margint are computed by Ratio Model. The result demonstrated that the current minimum solvency margin for non-life insurance is lower to the actual. Second this part made an improvence on insurance solvency indicators. It deleted several indicators such as change in premiums, the receivable insurance premium rate , admitted assets ratio, financed capital to gross capital and added some new indicators such as change in gross premiums, change in reserving ratio, fixed asset to reserves, owners' equity to net premiums. In the end, it made an empirical test for the new indicator system and revised the regulatory standards. The effectiveness of the new indicator system and the regulatory standards proved improved obviously.