Research Of The Economic Capital Of The Insurance Industry Based On Copula Model

The Chinese insurance industry keeps highly rapid growth since 1980s, when the country restarted the insurance industry. With the rapid rapid growth of the industry, insurance companies pays more attention to the risk management and prediction.As one of the three columns of financial industry, the insurance industry should pay more attention on the risk management, which is essential for them to survive in the fierce competition.As an advanced risk management skill, the economic capital theory is used in the risk management work of commercial banks. With the development of the theory,it is also used in the insurance industry. The economic capital theory has been an international major risk management skill of insurance industry while it has been known for the Chinese insurance industry for only more than ten years, it will be a main trend of Chinese insurance industry.Firstly, this research explains the main risks which the insurance companies will occur, then it explains the complex relationship of the risk, capital and profit.This research compares the economic capital with the minimum capital and book capital which will show the advantages of the economic capital.As the measurement of economic capital, this study shows the shortcomings of the traditional methods and advantages of VaR and TVaR methods, on which this research calculate the economic capital.As the integration of the risk, this study uses the Copula function which is used as a method to describe the relationship of some variables.This research shows compares the Copula function with some traditional methods which shows the shortcomings of traditional method.This research uses the logarithmic growth rates of health insurance and life insurance which are integrated by the Frank Copula model.Besides, the economic capital of January 2015 is calculated by Monte Carollo simulation based on the VaR and TVaR,the economic capital of January 2015 is 504.37236 million Yuan, which takes 6.88% of original premium income.The main innovations of this paper lie in the following two points:1. This study uses economic capital theory to describe the risk of health insurance and life insurance which is the most popular theory of the risk management studry, it makes the outcome of the study of a certain reference value and comparable.2.This study completed the whole work of risk management system which compared the economic capital calculated by VaR and TVaR, besides,it uses Frank Copula model to describe the relationship of the logarithmic growth rates of health insurance and life insurance which makes the research more comparable and reasonable.