Enterprise Risk Management Of Life Insurance Companies From The Economic Capital Perspective

Since the reform and opening up, China’s life insurance industry has become one of the fastest-growing sectors of the national economy, which has been in the continuous development of the rapid growth with average annual rate of about30%. As a special operating agency to profit during the risk protection services, life insurance companies need bear the risk of the insured as well as resolve their own risks. Compared with property insurance companies, life insurance companies’products face both a longer duration and more-complex risks. Therefore to establish and improve the risk prevention system has become an important and urgent task for the life insurance industry.With the accelerated pace of global economic integration and the frequent outbreaks of the financial crisis in the last decade, international economic situation has been changed dramatically, which lead two obvious trends for the development of the field of risk management. The first is the thinkingmade and constantly improvement of Enterprise Risk Management, and the second is the gradual formation of treating the economic capital as the core of a risk control system. The level of economic capital in the life insurance company represent the company’s risk resilience, which has an impact on the speed and scale of the expansion of the company’s assets, and finally decides the company’s capacity for sustainable development.This paper attempts to introduce the concept of enterprise risk management and economic capital to risk assessment and risk management of life insurance companies, and make an in-depth study on the application of economic capital in the areas of enterprise risk management of life insurance companies. The process also involves the theory of insurance, statistics, management science and other disciplines, which help to clearly explain the application and the analysis of the economic capital.Based on an overview of the life insurance company’s enterprise risk management, this paper elaborates the measure and configuration methods of economic capital in life insurance company with the empirical research. Then the paper treats these methods as the basis of enterprise risk management framework for life insurance companies with economic capital as its core. Finally instructions and relevant recommendations are proposed for problems in the implementation process.The innovation for this paper maybe:First, since the core indicator VaR for the traditional RAROC method does no satisfy the requirements of risk consistency, in order to better measure of the amount of economic capital required by the life insurance company, this paper chooses improved-TailVaR instead of VaR to be the core indicator. However the TailVaR method is difficult in practical application for its computation complexity, and the calculation of this paper is based on the assumption of normal distribution and computation process has been simplified. Second, the paper primarily builds the enterprise risk management framework with the economic capital to be the core, and applies the economic capital in the risk management and combines with company organizational framework. Compared with the traditional approach, this method is more advanced, which can be the future reference for China’s life insurance.