China's Property And Casualty Insurance Companies, Exchange Rate Risk Management

Insurance companies are facing with great foreign exchange risk recently. With the globalization of our insurance market, insurance business involving foreign interests undergoes rapid development. Due to the frequent fluctuation of foreign exchange rates, insurance companies suffer foreign exchange loss. Domestic basic industries such us import and export will be decreased with revaluation of the RMB, which may further reduce whole insurance business income. Some insurance companies have been listed abroad and raised large amount of US Dollars. However, with the revaluation of the RMB, these funds are continuously shrinking. And the investment of insurance capital has to be more cautious in consideration of the foreign exchange risk so as to influence the value maintenance and increases of these capital.It is important to study how to manage foreign exchange risk for insurance companies. Once the insurance companies become insolvent because of the foreign exchange risk, the insured couldn't be reimbursed or even recover from the loss, eventually the whole society will suffer great loss.To manage foreign exchange risk in insurance business, firstly it is important to focus on the insurance business itself such as developing new insurance products in foreign currency, foreign exchange rate sensitive insurance products, using proper currency in premium income and payments, or buying Foreign Exchange Risk Insurance to transfer those risks to other organizations. Secondly, managing foreign exchange risk in insurance business has to focus on the essence of financial risks by Asset-liability management of foreign exchange funds, proper investment of foreign exchange funds, etc., to keep the funds safe. And any type of foreign exchange risk management has to be adapted according to our current situation, i.e., our capital market or financial market is underdeveloped.