Research On The Arrangement Risks And Insurance Value Of Insurance Investment In China

During the vigorous development of China’s insurance industry in recent decades, gross premium volume has been growing at a compound annual growth rate of more than20%per year. Such a rapid growth of annual premium gradually formed a large scale of insurance capital. How to invest this fund safely yet efficiently turns out to be a big problem to insurance companies. The insurance company is different from other general investment institutions in many ways. Because insurance funds are responsible for liability payment in the future, it is the first principle for insurance investment that to guarantee the safety of the insurance funds. In the context of financial innovation in China, however, the emergence of a variety of high-yield financial products begin to gain market share of insurance products. At the same time, policy holders are requiring higher yield on insurance policy. How to balance the relationship between yield and risk, in another word, how to gain a higher yield while leaving the risk under control? This paper tries to explore this issue by introducing several risk management theories and making empirical analysis.The outline of this paper is as follows. In the first place, I would clarify the characteristics of the insurance capital, and then describe the history and the status quo of China’s insurance investment. After that I come to my first conclusion that the major risks faced by insurance companies are interest rate risk and market risk. For insurance companies, the most effective way to manage interest rate risk is asset-liability matching technology, while the best option to manage market risk is VaR-based risk management model. After the risk management theory part, this paper would take the China Life Insurance (LFC] as object and make a comprehensive evaluation of its risk management ability, based on the VaR model and RAROC method. The VaR method can be applied to insurance companies as the assessment of investment risk as well as an investment performance evaluation system. This is my second conclusion. In the last part, this paper suggests three proposals to insurance regulators about deregulation of insurance investment and more application of VaR model.The major innovation of the paper includes three points. First, by tracking large amounts of data and gathering the latest regulatory policies, fully demonstrated the status quo of insurance investment in China. Second, this paper applies VaR method in examining the risk management ability of China Life Insurance in both dimensions of history and industry. By doing so this paper fully demonstrates the advantages of VaR instruments. Finally, against the current inflexible regulatory policies, this paper proposes three recommendations to improve the regulatory system with more use of VaR method.