The Economic Capital Measure And Allocation Of Interest Rate Risk Of Life Insurance Companies In China

The financial crisis in2008makes the world’s regulators, life insurance companies, policyholders, and stakeholders, etc, realize that the risk management is critical to increase the value of the company, and protect the benefits of shareholders and policyholders. Through almost20years, the economic capital has been widely used in the international life insurance company. Practice has proved that the economic capital has an irreplaceable function in risk management, performance management and product management to life insurance company.However, it is only few years since the introduction of Economic Capital in the life insurance company of China, the study of its application in interest rate risk management of the life insurance company in our country is few and far between. Along with the advancement of interest rate marketization, interest rate risk of life insurance companies in our country is more serious, the existing interest rate risk management techniques can not meet its needs of interest rate risk management, however, the life insurance company in our country is in the initial stage, compared with the international life insurance company, the life insurance company in our country lack of actuarial talent, historical data and advanced interest rate risk measurement techniques, and using economic capital for interest rate risk management has a certain challenging.Hence, this paper integrates theory and practice, starts from the related theory, on the basis of the actual situation of the life insurance company in our country, this paper compares the existing interest rate risk measurement model of life insurance company, and then designs an economic capital measurement model of interest rate risk for the life insurance company in our country. Then this paper measures and compares the economic capital of interest rate risk of the four listed life insurance companies in our country from2008to2012years by using this model, and finds that the decrease of interest rate is beneficial for the control of interest rate risk of life insurance company’s assets, while the increase of interest rate is beneficial for the control of interest rate risk of life insurance company’s debt, compared with the interest rate risk of debt, the interest rate risk of asset is controlled better by the life insurance company, in2012, under the confidence level of99%, the economic capital of interest rate risk of the life insurance company is84.01%of life insurance company’s net assets.Then, this paper discusses the economic capital allocation of interest rate risk of the life insurance company in our country, and measures and compares the RAROC of four listed life insurance companies, compared with the premium income, using RAROC for economic capital allocation makes life insurance company not only consider the profitability of business but also consider the interest rate risk of business, in order to achieve the business objective of value maximization, the life insurance company should focus on the development of which business the interest rate risk is smaller and the gains larger.Because of the unique advantages of the use of economic capital in interest rate risk management, the economic capital will have a long-term development in the life insurance company in our country. Therefore, the study of the use of economic capital in interest rate risk management of life insurance company is necessary and has an extremely important significance.