Research On Asset Liability Management Of The Property And Casualty Insurance Company In China

Asset liability management is one of the core activities of insurance company, whose main function is to coordinate the relationship between the assets and liabilities, to reduce risk and improve enterprise value effectively. The theory of asset liability management has been relatively well developed overseas, and the techniques have been continuously improved and widely used in operation and management practice in insurance companies, and have got good effect. In China, research on asset liability management began late, but the output of the research has shown a vigorous development momentum. The research scope keeps expanding and the methodology innovates constantly through the communication with international peers and in combination with thorough studies in relation to China insurance industry characteristics. However, from the perspective of the research object, most of the available research focuses on asset liability management of long term business such as life insurance and pensions, whereas the research of asset liability management on general insurance is relatively rare. In recent years, general insurance industry in China has developed rapidly, and the size of assets and liabilities has expanded constantly. But the uncertainty and the risk resulting from insurance business and investment increases due to the international and domestic economic status, changes of investment environment and marketization of insurances rates, which makes general insurance companies take asset liability management seriously, so as to ease the company’s business risk effectively. At the same time, China Insurance Regulatory Commission agrees that investment oriented insurance business can be conditionally operated by general insurance company to some extent, which increases the difficulty and complexity of general insurance company’s asset liability management. Thus, the core of this thesis is to establish a system of asset liability management which is suitable for property and casualty insurance company. On the one hand, the system can help general insurance companies realize the purpose of asset liability management, effectively control the company’s overall risk, improve long term value for the enterprise. On the other hand, with the combination of asset liability management and accounting rules, the system can make the insurance companies focus on short term operational result while emphasizing long term value enhancement. The system can help insurance company to achieve a steady operation and maximize the enterprise value through good combination of short term and long term interests.Taking asset liability management of general insurance companies as the main research object, the underlying methodology of the thesis is to raise questions, then analyze questions, and propose solutions. There are five main parts as follows:an introduction, the theoretical foundations, some discussions of business characteristics, implementation of asset liability management, conclusions and suggestions.The first part is an introduction, mainly elaborating the research background, significance and research status at home and abroad. With rapid development of business and quick expansion of assets and liabilities scale, the demand for financial stability of general insurance company increases. But the lack of research on asset liability management of general insurance company has forced general insurance companies to put an emphasis on asset liability management objectively. It is expected to perfect the theory and management techniques, and reduce operational risk through research in order to enhance enterprise value.The second part is the theoretical foundations, namely chapter2and chapter3of this thesis, which includes the basic theory of asset liability management, management pattern and main techniques. The theoretical part provides in detail the related theories of asset liability management, such as immune theory, gap theory, theory of financial derivatives, and the theory of dynamic management. Management pattern part presents and compares the prevailed liabilities driven pattern, assets driven pattern, both assets and liabilities oriented management pattern respectively. The asset liability management techniques part describes specifically the immune techniques, matching techniques of cash flow, cash flow test, VaR (Value at Risk), and dynamic financial analysis. All of these asset liability management related basic theory and techniques lay a theoretical foundation for the following analysis and exploration.The third part is business characteristics analysis, consisting of chapter4, chapter5and chapter6, which includes insurance business structure and characteristics for general insurance company, investment business and regulatory requirements, as well as the composition of assets and liabilities of an insurance company and its measurement. The research emphasis of insurance asset liability management is the matching problem of assets and liabilities, and the starting point and the ultimate aim of the research is insurance assets and liabilities and their influence on the asset liability management. The liability of general insurance company is mainly produced by insurance business, the business structure and measurement of liabilities have a direct influence on the amount of the liabilities, time period and the requirement of return on investment; the assets are mainly in the form of investment assets, of which the internal structure is affected by investment supervision and is related to accounting rules closely. Therefore, the deep understanding of the insurance business and investment business with their characteristics, as well as the composition of assets, liabilities and measurement, lays a business foundation for asset liability management.The fourth part is the implementation of assets liability management for general insurance company, namely chapter7and chapter8. This part puts forward a new idea of building asset liability management system for general insurance company on the basis of theory introduction, business characteristics, assets and liabilities structure and measurement. The system includes the management pattern of deciding the direction of asset liability management, the investment management pattern affecting investment risk and return, the asset liability management techniques suitable for business characteristics and the specific applications of these techniques. In this thesis, the dynamic financial analysis is viewed as the core asset liability management technique for general insurance company, whose business manipulation procedure, the model framework, and the logic structure of the main variables are discussed as the central keystones, and the variable model building problem is explored in combination with the dynamic financial analysis model Dynamo3. Based upon the above discussions, in this thesis it is innovatively put forward that the management procedure of dynamic financial analysis should be adopted, which combines short term accounting results and long term value. The procedure combines all requirements of enterprise strategic planning, budget management and asset liability management. From the procedure the related information as regard to operational results, solvency and asset liability matching can be generated from the basis variables, which benefits the management decision making of company as a whole.The fifth part is the conclusion and policy recommendations, namely chapter9of this thesis. The research results of the thesis are summarized, and for the purpose of promoting the development of asset liability management for property and casualty insurance company, relevant suggestions are put forward from the perspective of supervision and enterprises itself. Proposals for regulatory body are as follows:firstly it is suggested that regulators lead a way and establish a comparatively perfect asset liability management system, and require insurance companies to improve their corporate governance structure and set up organization structure and operational mechanism to meet the requirements of asset liability management by regulatory rules. Secondly, further expand investment channels and scope, and loosen investment proportion restrictions gradually, finally allow insurance company to arrange its asset allocation according to its actual situation. Advices for enterprise management include:firstly introduce asset liability management techniques in the management process of company solvency, to reduce the business risk effectively through the combination of asset liability management and solvency management. Secondly, use ALM techniques to realize a good interaction of insurance business and investment in the process of product design, sales, management and investment decision making. Thirdly, establish an effective coordination mechanism inside the company, so that with high managers’emphasis, and the participation of relevant departments, insurance company should make asset liability management play a positive role in company’s risk management and value enhancement.