Research On The Model Of Insurance Funds Investment Based On VaR-RAROC

Modern insurance company is not a simple financial compensation institution, but a comprehensive economical corporation, which has the function of finance and defending risk. Insurance operation and investment operation are two important factors for insurance company. Furthermore, the utilization of insurance capital is the base that makes the company work well. Insurance investment is a sort of economical activities, which aims at gaining income by laying out unused insurance funds. Nowadays, insurance investment becomes more and more important, as the insurance competition picks up. Insurance company's profit mainly comes from investment, along with the depression of accepting insurance profit.This paper extends existing literature on insurance funds investment, in particular, using Value at Risk (VAR) as risk measurement and Risk Adjusted Return on Capital (RAROC) as performance evaluation approach. The paper develops a new model of insurance funds investment that considers the underwrite risk, VAR constraint and maximizing RAROC on risk adjustment. The paper first presented two optimal investment proportion formulas gave an illustration to show their application, and a comparative analysis of their advantages and limitations. On this foundation, this paper raises a new insurance investment model of VaR-RAROC. The insurance funds investment model, gave specific inference, and addressed the model under the non-state condition. Finally, the model is applied to the investment cases of the Pingan Insurance Company and China Life Insurance Company, analyzed the insurance funds investment situation of these two largest listing insurance companies in china, thereafter analyzed the comprehensive condition of insurance industry in China, and gave relative suggestions to the development of insurance industry in China.