Economic Capital Analysis Of Insurance Companies Based On Financial Perspective

In early 2012,the China Insurance Regulatory Commission issued "China's second generation of solvency supervision system construction plan(here in after referred to as of C-ROSS).It measures the risks of insurance undertakings,scientifically and comprehensively,and pays more attention to the risks of the insurance companies in China.Since the C-ROSS was implemented,the insurance market is in a state of strict supervision.The insurance market's problems appear constantly.For example,the supervision of the universal life insurance is tightening,as a result,insurance companies have to structure their business.At the same time,a mass concentration of surrender appeared,the insurance companies' liquidity risk rose,and the companies had to transform.On the other hand,in.some insurance companies exposed a problem that their assets and liabilities are non-compatible and there is duration gap between assets and liabilities.Thus,for the insurance companies,establishing a set of enterprise internal risk management system,focusing on corporate balance sheets,preventing liquidity risk,evaluating the performance of enterprise capital operation and investment strategy,has become the top priority.This paper introduced a concept of economic capital,proposed to set up a risk supervision system which has a core of economic capital.It may start from the internal risk management,use economic capital to investigate the profitability and liquidity of Chinese insurance companies.In this paper' s theoretical analysis part,we generalize and analysis the theoretical framework of economic capital and economic value added,systematically expounds the definition the measurement method of the economic capital and economic value added.And then from the financial perspective and the definition of economic capital and economic value added,we demonstrate the correlation between the economic capital,the liquidity and integrity of the company's financial,economic value added and profitability,as well as the advantages,the limitations,and the feasibility of using economic value added to measure economic capital.In this paper's empirical analysis part,we select four Hong Kong stocks listedChinese insurance groups(China Pacific,.China Ping An,PICC,China Tai Ping),and the financial data is from January 4,2007 to December 30,2016.Then,we calculate out the economic added value and the economic capital of the four insurance groups,and examine the changes in the liquidity and profitability of them.First,in terms of profitability,the 2008 financial crisis has had a huge impact on the profitability of Chinese insurance companies.The profit fluctuation of auto insurance market has a great influence on the profitability of Chinese property insurance companies.Under the C-ROSS,the profitability of Chinese insurance companies declined since the high supervision of universal insurance caused massive surrender.Secondly,from the perspective of liquidity,the 2008 financial crisis has some influence on the liquidity of Chinese insurance companies,but the influence degree is less than that of profit.All over the four group,China Ping An has the best profitability but the worst liquidity,while China Tai Ping and China Pacific have a problem of excess liquidity.Third,overall,Chinese insurance companies have a single business structure and insufficient capacity to deal with larger risk shocks.The financial structure still needs to be improved.At last,we think economic capital as the core of risk management and performance appraisal system can intuitively and quickly reflect the changes of profitability and liquidity of an insurance company in China.And we proposed some suggestions on supervision and enterprise reform.