China's Use Of Insurance Funds Research

Insurance operations often occur with the cyclical changes of the macroeconomicenvironment. When the market's need of risk protection exceeds the ability ofinsurance companies' supply, insurance companies' underwriting insurance businessactivities are the main source of profits. When under the contrary conditions, thecompetition among insurance companies makes them to the bad and the fund yieldexceeds the underwriting business to be the main source of profits. That is to say, asthe only two main profit sources, fund investment and insurance accepting will playdifferent role as the different economic development phases. As the reducing ofinsurance fee and the rising of expected insurance of the policyholder, the profit fromunderwriting business will gradually dwindle, which will badly affect the survival ofinsurance company. As a result, insurance companies must seek the profit from thefund investment business. After China joined into WTO, more and more cross-boardinsurance companies have entered into China. The investment of insurance fund isbecoming a regularity behavior including QFII. These competitive environmentssupply a reference to the Chinese insurance companies. Therefore, the use ofinsurance funds has become a major international insurance operation in business.China will experience an important period of economic development in the nearfuture. Chinese insurance industry will also face an important opportunity ofdevelopment. The overall requirements on the use of insurance funds is deepeningreform of the use of insurance funds, pushing the operation of insurance funds to beprofessional, normative and marketable, continually expanding the channel and thescope, taking full advantage of long-term and stability of insurance funds to providefinancial support to the national economy. This shows that the using of insurancefunds in China's insurance companies has attracted widespread attention in thetheoretical and practical sides. Improving the effect of Chinese insurance fundsoperation through entering into the capital market to achieve the consolidation ofsafety,profitability and liquidity is the central issue of this paper.This paper firstly introduces the literature on the using of insurance funds and theModern portfolio theory, which provides the theoretical basis for domestic insurancefunds to enter into capital market. For the risk and revenue analysis of insurance fundsoperation, this paper consults the Markowitz's portfolio theory. This theory divides theassets into risk-free assets and risk assets, consequently combines the risk withrevenue to a whole analysis frame. As to Chinese insurance funds, Markowitz's theory provides an operation way to insurance companies from bank deposit and nationaldebt to the combination of bank deposit, national debt, corporation bond, stock andfund. When the combination includes stock and security fund, the risk becomes thepivotal factor of investment. This paper refers to the VaR theory, applies a riskprobability to a given revenue level. The risk probability represents the risk endurelevel of insurance funds. So VaR is a very suitable method to measure the risk ofinsurance funds.Secondly, this paper reviews the history of the using of insurance funds in China,analyzes the current situation of insurance funds using, and points out the problem oflow revenue and high risk. This paper also analyzes the operation of insurance fundsin the capital market from the views of safety, profitability and liquidity. As a result,this paper brings forward that insurance funds' entering into capital market is aneffective solution to solve the revenue and risk problem of insurance funds investment.Then this paper studies the necessary and method of insurance funds investing oncapital market, points out the stock, bond and fund are the main objects of insurancefunds. Insurance funds can adopt direct and indirect way to enter into capital market,which performs different safety, profitability and liquidity. This paper studies Pingan'scase from two aspects of the investment channels and yield levels. Through thecontrast of Pingan's return rate with the average rate of insurance industry, this paperproves that the high return rate relates to the operation in capital market.In succession, this paper studies the performance evaluation model of insurancefunds' investment in capital market, and analyzes the three representational singlefactor and multi-factor model of Reynor (1965), Sharpe(1966) and Jensen (1968).Then this paper founds sub-level model, risk-benefit model, the LS model and themarket performance indicators evaluation model, which are appropriate to Chineseinsurance companies and capital market. At the same time, this paper introduces theinvestment ratio model based on the underwriting risk, the optimal proportionportfolio model based on the difference coefficient and VaR limits. From all above,the consanguineous relationship in insurance company between investmentperformance and fund management is proved.Granger model shows that there is causality relationship between investmentperformance and mobilization value of capital market in China. So, it is necessary todeepen reform of capital market, expend the investment channel and improve theproportion of insurance funds to capital market. For insurance company, it is important to select appropriate invest strategy and found optimal portfolio. At thesame time, the "exit" mechanism of capital market should be consummated. Theinsurance company should establish actively choice of portfolio and timelyadjustment of investment, which can improve the profitability on the basis of safetyand liquidity.Finally, this paper analyzes the risk of insurance investment and uses theβtomeasure the investment risk. On the study of conduction mechanism, this paperindexes that the insurance fund investment risk should be controlled from two aspectsof capital market and insurance company itself. On one hand, capital market shouldbe reformed and innovated. On the other hand, insurance company should foundappropriate risk prevention policy and system. From macro-regulatory perspective,China should fully exert the function and action of SEC and IEC, enhancecommunion and cooperation between them, explore and perfect the cross-custodymechanism. From all above, the insurance funds can achieve the profitability on thebase of safety and liquidity and the Chinese insurance companies can develop stably.On the end of this paper, some future research directions are presented.