Interest Rate Marketization’s Impact On China’s Life Insurance Company Asset Income Risk

The rapid development of economic globalization makes the world economy more closely linked, in order to improve our international competitiveness, China is taking the economic reform gradually to quickly integrate into the world economic globalization. The marketization of interest rates is an important step for China to perform the financial reform. The marketization of interest rates will help promote the optimal allocation of financial resources and enhance the autonomy of operating financial institutions. At the same time, the marketization of interest rates will make further highlights the interest risk of China’s financial institutions. Insurance company as a company engaged in the risk management for profits, its development places an important role for the national economy. However, some insurance companies lacks the full understanding of interest rate risk, resulting in the closure of their lives. Life insurance companies’ funds management have important impacts on its risk control. Therefore, the study of the risk of marketization of interest rates’ impacts on China’s life insurance company’s investment assets yield is very important.This paper is divided into four parts. The first part analyzes the reform experience of which nationals’ interest rate marketization; the second part analyzes the current situation of China’s life insurance industry in the process of marketization of interest rates, as well as the main risk is the interest rate risk; the third part analyzes the life insurance company’s assets composition, and predict the trends of factors in the process of interest rate marketization through VAR model, the factors which affect investment income of life insurance companies; the fourth part discusses the strategy to deal with the life insurance company’s risks of interest rate. In the first part of this article, we analyze the results of the reform policies and reforms about interest rate liberalization in United States, South Korea, Chile, Taiwan. I think the interest rate reform is a gradual process, but also it need for a stable macroeconomic situation and a sound regulatory regime. Our country should to combine with our national condition and current international environment, and promote market-oriented interest rate reform stably.In the second part of this paper, empirical analysis show that although China’s life insurance market competition intensified, but the development of the life insurance market is still stable and life insurance market continues to dominate the insurance market. China’s insurance market is still in its infancy and financial markets also needs to be improved. For these reasons, life insurance products appear single structure and low investment yields, further increase the interest rate risks faced by the life insurance industry. Due to the special nature of life insurance operations, long-term debe, making the interest rate risk has become a primary goal of the life insurance company’s risk management. This section also describes the relevant measures of interest rate risk on insurance company.The third part of these paper, according to China’s actual condition, the composition of China’s life insurance company’s investment funds were specifically analyzed. By analyzing the characteristics of the source and the application principles of life insurance funds. According to the characteristics of investment funds, we select the key environment variables that affect life insurance companies’ investment returns:short-term market interest rates, long-term market interest rates, consumer price index, the shanghai Composite Index, and establish VAR model. The relation between the factors that affect the life insurance investment is derived by VAR model. We also predict the future trend of these factors, and the prediction can be ready for the life insurance company’s future interest rate risk. In the fourth part of this article is mainly to provide life insurance companies to deal with the risk of interest rate risk, which from the life insuracne company internal management and external environment in the life insurance market. First, the life insurance companies should to improve risk management, At the same time, the companies should to improve produce development capability to meet the actual needs of consumers; Second, the life insurance company should to diversify company’s investment funds, to prevent the interest rate risk and improve return on assets; Third, due to fierce competition in the life insurance market, the insurance company should develop new channels to reduce operating costs and increase revenue.The main innovation of this paperg:by analyzing the life insurance company’s assets constituted, we selected the short-time market interest rates, long-time market interest rates, consumer price index and stock market indices of these four economic variables as the main factors affecting the investment income of life insurance companie, and then create the VAR model. By VAR model, we get the relationship between these four factors. The changes in short-term market interest rates would have an impact on the securities markets and market inflation. Becaues of China’s bond market is imperfect, changes in short-term market interest rates failed to produce a significant effect on long-term market interest rates. Because the interest rate market will increase the volatility of the interest rate market, and thus will affect the stock market and market inflatiotn. So the interest rate market will increase the risk of investment income of life insurance companies. And because the VAR model can predict, we can provide help for the insurance companies’asset management through a VAR model.