Research On The Asset-Liability Management Of China’s Property And Casualty Companies

Asset-liability management (ALM) was derived from the mismatch between assets and liabilities in commercial banks caused by interest rate risk in western countries. As the in-depth theoretical study and abundant practical experience in asset-liability management, its connotation and application have been greatly extended. At present, asset-liability management, in broad sense, refers to allocating fund strategically to realize certain specific operating objectives. In developed countries, asset-liability management can be used widely, not only in commercial banks, but also in life insurance companies, property and casualty insurance companies, social pension management, annuity management and fund management.The overall business scale of property insurance in China has maintained rapid growth trend. Moreover, property insurance industry has played an important role of economic compensation in the national economy. The profits of property and casualty insurance companies have relied on the underwriting profits over the years in China. However, because of fierce competition, the underwriting loss of property and casualty insurance companies existed widely in our country since 2003, which made the net profits negative, worse more, the trend is becoming deteriorative. Actually, this current situation of property and casualty insurance companies in China is very similar to that in western countries in 1980s. At that time in western countries, the application of asset-liability management helped property and casualty insurance companies resolving the crisis successfully. From then on, they have paid more and more attention to asset-liability management and regarded it as the core of management. It has been proved by practice that asset-liability management is necessary for property and casualty insurance companies to achieve stability and profitability. However, at present, property and casualty insurance companies in China lack of correct theoretical cognition and active implementation of asset-liability management; meanwhile, very few people engage in theoretical study in this field. This dissertation hopes to draw forth theoretical study and provide practical and valuable suggestions in asset-liability management of property and casualty insurance companies in our country.On the basis of analyzing theoretical research and operational experience for asset-liability management of property and casualty insurance companies in the developed counties, taking the external business environment and the internal operating conditions of property and casualty insurance companies in China into account, this dissertation puts forwards some suggestions about the development of ALM for property and casualty insurance companies in China, such as the concept, mode, method, organizational structure and external supervision. The core purpose of this paper focus on searching the suitable method of ALM and constructing the relevant model for the property and casualty insurance companies of our country.As mentioned above, to achieve the purpose of research, this dissertation takes the functional orientation and the development of theoretical thinking of ALM for the property and casualty insurance companies as the starting point and the theoretical basis; with the analysis of the practical processes in this filed both in China and foreign countries, it has found the reasons for the successes achieved in developed countries, and realized our current situation and the gap in all-aspect; With the comparison between several main methods in asset-liability management, it concludes that dynamic stochastic programming will perfectly meet the special demand of ALM for property and casualty insurance companies, and it can make the best decision under uncertainty. Then, in order to make the basis for the application of ALM dynamic stochastic programming model in China’s property and casualty insurance companies, this article specially researches on the basic principle and the key factors of this model, analyzes the practical value of it in our country. The research as above from the aspects of theory, method and current conditions, has built a scientific and stable triangle platform for the construction of ALM dynamic stochastic programming model in China’s property and casualty insurance companies. Based on this platform, the ALM dynamic stochastic programming model is constructed, which can meet the practical needs of China’s property and casualty insurance companies, and its effectiveness and usability have been proved by the empirical study. Thus, the objective of this paper has been achieved.The main content of this article is consisted by the following seven parts:Chapter one is the introduction, which introduces the background of choosing the subject and the significance of the research, comments on the research progress at home and abroad, and summaries the main contents and innovations of this dissertation.In chapter two, the author analyzes the particularity, necessity, function and role of ALM for property and casualty insurance companies. In addition, the process and changes of the ALM theory development are introduced in this chapter.In the third chapter, the author clarifies the difference of ALM between the developed countries’property and casualty insurance companies and our country’s through the analysis of the specific practice. Moreover, this chapter illustrates several active proposals about the development of ALM for China’s property and casualty insurance companies, furthermore, the method of ALM is specifically emphasized because which will directly decide the effectiveness and efficiency.The forth chapter analyzes the fitness of five current representative methods of ALM for property and casualty insurance companies. The five methods include cash flow matching, cash flow testing, immunization, dynamic Financial analysis and dynamic stochastic programming. The result shows that dynamic stochastic programming is suitable for property and casualty insurance companies and able to generate optimal asset-liability management decisions.The fifth chapter focuses on the basic principles and the key factors of the ALM dynamic stochastic programming model for property and casualty insurance companies. The application value of this kind of model is proved in this chapter as well. As the researches above make the base for the construction of ALM dynamic stochastic programming model in China’s property and casualty insurance companies.The sixth chapter is a key section of this article, which builds up an asset-liability management dynamic stochastic programming model that is suitable for China’s property and casualty insurance company. This model is a multistage stochastic linear programming with simple recourse model, which expresses the risks of liquidity and solvency concretely and clearly by penalty costs. Through the empirical study and the comparable analysis with the current model, the practicability and validity of this model have been demonstrated in this chapter.The last chapter concludes the dissertation, and points out the prospect for in-depth research in the future.As the researches about the asset-liability management of domestic property and casualty insurance company are little, this paper bears exploration and innovation. The most important innovation of this article as follows:firstly, it introduces a new method of ALM for China’s property and casualty insurance companies, which is the method of dynamic stochastic programming; secondly, it constructs an asset-liability management dynamic stochastic programming model, which is suitable for China’s property and casualty insurance companies.