The New Application Of Economic Capital VaR Risk Measurement In The Valuation Of Reserve And Solvency Of Insurance Companies

Around the world, more and more financial organizations adopt the quantitative risk management ground on risk measurement within their limits of authority. Combining VaR, a method to measure economic capital, with traditional actuarial technology, the paper comes up with calculation of new risk liability reserve and connects it with statutory reserve and minimum solvency margin as stipulated by China Insurance Regulatory Commission, finally to supply an innovative thought of risk management for CIRC and insurance companies, via comparing the new method of economic capital VaR, and the traditional regulations of solvency.Firstly, the paper makes an introduction to the problem background, the evolution of risk measures, the research status, the concept of economic capital and its scale method VaR. Then, taking a term life insurance policy as an example, the paper calculates the statutory reserve and the minimum solvency margin at a certain valuation point, according to the current actuarial regulations.The core content is the model of risk liability reserve using the economic capital measurement VaR. This paper deduces and builds the model of risk liability reserve, explaining the random variables and assumptions and adopting the same policy example, and then carries on the empirical analysis which shines in the Monte Carlo stochastic simulation of all the random variables in the model with Matlab software, through Scenario Testing to get the risk liability reserve results under some certain and even extreme circumstances. What’s more, the paper also changes the factors, such as the sexuality or the age of the policy holder and insurance period, to separately work out the risk liability reserve results.After comparing the results, the 95% tolerance risk liability reserve minus the statutory reserve, with the corresponding minimum solvency margin, and analyzing the distance between them, a conclusion is drawn that the current minimum solvency margin calculation in the CIRC regulation is too rough to accurately measure the actual economic capital needed for different policy holders at different ages and different policies with different insurance periods. Though rough statistics facilitates the investigation of CIRC, insurance companies may hardly make a maximum profit because the solvency margin is impractical to some extent. If each company is able to set up such a risk reserve model to calculate the economic capital of the whole business, the risk which Un-Expected Loss brings about can be covered efficiently. It also increases the possibility to achieve the maximum profit for companies.