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Research on Investment Risk Management of Life Insurance Enterprises under the Financial Crisis

Author: MuWeiTian
Tutor: LinYi
School: Southwestern University of Finance and Economics
Course: Insurance
Keywords: life insurance investment risk management financial crisis PingAn of china AIG
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 77
Quote: 0
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It was2008that a very unusual year. During this year, the subprime mortgage crisis which stemmed from Wall Street triggered financial crisis, which brought a serious recession to the international financial market. Many insurance companies had been hit in the financial crisis, and some even had gone bankrupt. AIG (American International Group) is the best-known and the most influential one of these companies. Therefore, the Federal Reserve Board had announced that they would pay$85billion emergency loan to AIG in accordance with the nationalization mode of Fannie Mae and Freddie Mac. The profound lesson of the financial crisis is worth thinking.The financial crisis quickly spread to global financial markets due to the pattern of global economic integration. So Ping An’s oversea investment has suffered a severe loss. Before the outbreak of the financial crisis, Ping An of China actively expanded their investment business into the overseas capital market, and they had bought a large number of stocks of Fortis. But with the U.S. subprime mortgage crisis and the financial turmoil of Wall Street spreading to the European financial market, the share price of Fortis fell sharply, and Ping An’s assets also fell. According to the annual report of Ping An, the initial investment of Ping An was23.838billion yuan. But on October20,2008, this figure was1.038billion yuan. Ping An had a loss of22.8billion yuan, which is95%of the total investment. And it eventually led to Ping An’s failure in overseas investment. On one hand, life insurance companies strive to improve the life insurance funds investment yields due to the pressure of market competition, on the other hand, life insurance companies will pay more attention to investment risk management because of the increasing risk. Thus, in the background of the financial crisis, not only the theoretical study of the life insurance company investment risk management is vital for the operation of life insurance companies, but also important for the internationalization development of life insurance industry in China. In terms of research methods, this paper use method of theoretical analysis, historical analysis and the method of international comparisons. The theme of this paper didn’t have a mature theoretical system, so this article is mainly based on theoretical analysis. This paper analyses the history of the life insurance funds investment of China, the changes of portfolio of Ping An the financial crisis and changes of American financial regulatory policies under the financial crisis. The study of the history of the life insurance funds investment of China is the foundation of the present theoretical analysis. According to the research of the impact of AIG suffered from the financial crisis and the changes of American regulatory policy, I will draw a conclusion that the trend of China’s financial regulatory policies, which use the method of international comparison as I mentioned before.The main content of this thesis is about the issues of the investment risk management of life insurance companies under the financial crisis. The first chapter is an introduction part of the whole paper, which discusses the research objectives and meaning of this article, the achievement of previous studies, the framework of this paper, the innovation points of this paper and the shortcomings of this paper. The second chapter discusses the historical development of life insurance investment risk management of China for three decades. Chapter three sets Ping An of China as an example, it discusses the losses of Ping An under the financial crisis by collecting a lot of data, investment channels change of Ping An before and after the financial crisis and focuses on the potential investment risk of Ping An. According to the case of AIG, chapter four discusses the impact of the financial crisis on investment risk management of foreign life insurance and focuses on the changes of the American financial regulatory policy under the financial crisis. Chapter five offers several ideas and suggestions of insurance investment risk management, which are life insurance company’s own risk management measures and suggestions of the regulatory policy.The innovation points of this paper are as follows:first, through the data analysis of the China Insurance Regulatory Commission, Ping An of China and two foreign insurance companies, this thesis presents the influence of the financial crisis on the risk management of life insurance companies. Second, this paper develops some measures to strengthen the risk management of life insurance companies, and lists a series of suggestions of insurance regulatory policy. Third, this paper states some international experience of life insurance investment risk management by researching two cases-Ping An investing in Fortis and AIG’s collapse in the financial crisis. Combined with the Chinese development condition, this paper proposes several suggestions for the Chinese life insurance investment industry.The shortcomings of this paper are as follows:First, educational background. The author of this paper got his bachelor’s degree in agronomy, but not in economics. Agronomy is a natural science, so the author has a mindset, which is only adopted in natural science research. And the author lacks long-term learning experience for theoretical research of economics. Second, it is difficult to obtain some data of insurance companies, because these data is confidential to insurance companies. Therefore, this article can’t use a method of empirical analysis.

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