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The Application of the Insurative Model in Risk Management of Capital Structure in Chinese Non-life Insurance Companies

Author: WuQingYi
Tutor: ChenZhiGuo
School: Southwestern University of Finance and Economics
Course: Insurance
Keywords: The insurative model Capital structure Risk management Non-life insurance companies
CLC: F224
Type: Master's thesis
Year: 2009
Downloads: 163
Quote: 0
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Abstract


In recent years, companies face more and more risks. With the continuous development of capital markets, there are a number of new risk management tools in foreign financial and insurance markets, such as ART products. In the international market, there is a trend of integration of capital structure management and risk management. In foreign countries, practices of capital structure management and risk management have become maturer. It dues to that foreign capital market provides a variety of financing channels for insurance companies.The paper is based on the non-life insurance companies’risk management framework of capital structure. The insurative model is the theoretical basis for building non-life insurance companies’theory system of capital structure risk management. Through the analysis of Chinese non-life insurance companies’diversified financing strategy and the impaction of lowering capital costs as well as improving risk management, a conclusion can be got that the insurative model will optimize capital structure of non-life insurance companies.In the preface, I regard that capital structure management and risk management is an inevitable result of the integration of the insurance market and capital market as well as innovation of risk management tools. Some concepts are defined in it.The theoretical basis is established in the Chapter Two. The standard model, insurance model and the insurative model are described. The insurative model is based on the traditional model of capital structure. The third chapter starts with the relationship between capital and risk on the basis of the framework of RCV. The relationship between management of capital structure and risk is discussed in the chapter.Traditional sources of financing are limited. In Chapter Three, the insurative model provides a variety of financing channels for non-life insurance companies, including capital listed in balance sheet and not in balance sheet. Capital listed in balance sheet includes: senior debt, hybrid capital, equity capital and insurance-linked securities. Capital not listed in balance sheet includes: contingent capital, insurance and insurance derivatives. In the paper, the significance of introduction of the insurative model for non-life insurance companies is in two aspects: First, the expansion of the non-life insurance companies’financing channels can optimize the capital structure. Second, new types of risk management instruments can reduce the risk of capital structure.The status of Chinese non-life insurance companies’capital structure is discussed in Chapter Four. Chinese existing financing channels include equity capital, subordinated debt and so on. The necessity, feasibility and constraints of introduction of the insurative model to non-life insurance companies in China are discussed.In the last chapter, non-life insurance companies’system on risk management of capital structure is established. We get conclusions that we can use the insurative model to strengthen Chinese non-life insurance companies’capital structure management and reduce cost of capital. An example is given to illustrate that the purchasing of insurance may decrease the cost of capital. Although many aspects restrict the use of the insurative model in non-life insurance companies in China, the insurative model will play an important role in capital structure risk management in Chinese non-life insurance companies. At last, several suggestions are proposed to strengthen the risk management of capital structure.The main innovations in the paper are as follows:The insurative model in non-life insurance companies’capital structure management strategy is discussed to diversify financing and manage risk of capital structure. The insurative model integrates non-life insurance companies’capital structure management and risk management.More efforts should be made in the further research in the following three aspects.First,the calculation of capital costs in non-life insurance companies should be made in the further research. The calculation of capital cost is involved in financial management, accounting and derivative products and so on.Second,how to reduce the cost of capital to optimize the capital structure need further study . Lowering cost of capital is an important way to optimize the capital structure. How to solve this problem involves the calculation of the cost of capital.Third,the analysis of capital structure risk in non-life insurance company need further study.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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