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Research of Chinese Insurance Funds Investment Base on VaR

Author: LuWei
Tutor: ZhouRuoWei
School: Southwestern University of Finance and Economics
Course: Insurance
Keywords: Insurance Funds Investment Risk Management Value at Risk VAR Tools
CLC: F842
Type: Master's thesis
Year: 2012
Downloads: 510
Quote: 0
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Abstract


Along with China’s rapid economic development, China’s insurance industry in recent years has also made remarkable achievements, total premium income scale and the balance of available funds have greatly increased, the opportunity and the difficulty of the use of insurance funds are both increasing, how to achieve the balance between the risk and the gift of so a lot of money has become very urgent.VaR also known as value at risk is the biggest losses of an asset or risk portfolio in a certain period in a given confidence level may occur. VaR method as a risk measurement tool, not only can measure the risk of an investment or portfolio, and can optimize the portfolio, if the investment of insurance funds as a portfolio, then the VaR tool risk management applications can be use for manage the risk of insurance funds. The article is based on the application of the VaR method, combined with use of insurance funds situation, the VaR methodology used in risk management in China’s use of insurance funds.This paper first introduces the research background and significance of the topic of the article. The original premium income of China is1,452,797,145,500yuan in2010, growth in premium income to continuously enhance the carrying capacity of China’s insurance industry, but also brought the use of insurance funds, ended as of the end of2010, insurance funds available balance5.04trillion yuan, compared to3.7trillion in2009, an increase of36%will maintain the scale of growth. Accompanied by the continuous increase in the insurance market players, is bound to intensify competition in the insurance products, the insurance companies to gain market share with compression of underwriting profit, underwriting profit only by raising the income level of the use of insurance funds to compensate for, so as to maintain adequate solvency capacity.In this context, how to improve the investment rate of return of insurance funds to cover the underwriting rate of return, the stability of insurance companies from continuing operations is particularly important. The significance of this study is that analysis the status quo of China’s use of insurance funds as well as the problems on the basis of the channels and associated regulatory restrictions on the use of insurance funds, and proposed improvements, making use of insurance funds in China higher level, under the premise to meet the the CIRC relevant provisions and solvency requirements, to achieve higher margins, and ultimately make the insurance companies to maximize the Embedded Value.Chapter Ⅱ of this paper described the use of insurance funds. Based on a general definition of the use of insurance funds, insurance funds constitution, the nature of insurance funds and the concept of use of insurance funds, an overview of the use of insurance funds. Research on insurance funds in China to summarize the problems and reasons for use of insurance funds, Combing VaR theory, summed up the two definitions of expression of the VaR method, and VaR tools were introduced.History of use of insurance funds in China, the status of use of insurance funds is analyzed in Chapter Ⅲ. Concluded the analysis of the historical evolution of China’s use of insurance funds is broadly divided into four stages, namely: control phase (1980-1987); disorderly confusion stage of development (1987-1995); specification stage of development(1995-2009);booming stage(2009-present).Analysis of the status quo of use of insurance funds in China, mainly from the following aspects:the size of China’s use of insurance funds, the use of insurance funds in China, structure, and the existing problems of China’s insurance funds use.Chapter Ⅳ:investment theory are introduced, and analysis of the theory of VaR method and combined with the use of insurance funds. First, the Markowitz model, capital asset pricing model and arbitrage pricing model were analyzed. Then, the use of insurance funds, and that the VaR method is applied to the use of insurance funds in China is mainly reflected the VaR method the following main functions:risk management functions, performance evaluation function, the investment management functions, in addition to VaR method can also be used for insurance risk management, information disclosure and risk limit management.Chapter Ⅴ, an empirical analysis based on the VaR method to optimize the use of insurance funds management. In all VaR calculation methods can be roughly divided into three categories, named:the historical simulation method, parametric method and Monte Carlo simulation method. By contrast does not consider the various asset investment rate of return correlation and consider the VaR of the portfolio various asset investment rate of return calculated from the correlation between both cases, we can see that taking into account the correlation of various asset investment rate of return portfolio VaR is less than doesn’t consider the VaR of the correlation of various asset investment rate of return between different asset investment risk through portfolio investment, the investment risk of the entire portfolio is less than the risk of the individual asset investment simple sum, is scattered through the portfolio behavior of each individual asset risk, Do not put your eggs in one basket.Then calculations of VaR tools, respectively, to calculate the marginal VaR, incremental VaR and composition of the VaR of each individual asset, the use of insurance funds through the application of VaR tool for risk management. Also introduced in Chapter5of the last part of the VaR methodology in other areas, as well as the VaR methodology flaws, VaR method is not perfect risk measurement tool, by itself, there are still a lot of defects:the information given by the VaR relative to the portfolio may be wrong; VaR method can not measure the long-tail losses; the VaR may cause moral hazard; the VaR does not meet the consistency axiom.Finally, based on the analysis of the full text, combined with the use of insurance funds in China, I think to enhance the level of China’s insurance funds can be used from the following aspects:improving the tools of investment analysis and risk measurement tools, and improve the asset and liability structure and duration of the match, gradually broaden the insurance investment channels to enhance the level of use of insurance funds, as well as improve the use of insurance funds of internal control and regulatory system.

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CLC: > Economic > Fiscal, monetary > Insurance > China's insurance industry
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