A Study On The Interior Solvency Management Of Insurance Company Upon Economic Capital

Nowadays, capital management is being the key job of financial enterprises risk management. With the fast development of global economy and financial markets and the abundant innovations of financial product, the competition of insurance market is more and more intensive and the price of insurance product has to be depreciated. All these things may influence the solvency of insurance company. Sharp market competition brings more risks as well as more profitable opportunities. In addition, the risk of financial markets' fluctuation is enlarged, which increased the uncertainty of insurance operation. It can be concluded that the operating condition is more risky to insurance company.Therefore, it is necessary for insurance company to carry out interior capital management of solvency aside from allocating capital according supervisory commission's regulations. This management pattern should not only takes risk and efficiency important, but also takes creditors' and stockholders' benefits important. Only in this way, insurance company can be long-living.This paper suggests that establishing an interior management frame of solvency based on economic capital allocation is necessary for insurance company. This management frame, from the angle of interior risk management, regards economic capital as a target of capital allocation. On the basis of the research achievements of accounting measurement, a new way using fair value completely to evaluate assets and liability is advocated by the paper. And this way is different with both generally accepted accounting and regulatory accounting because the solvency calculated by the way is more correlative. Through the method of theoretical analysis, system contrast and empirical analysis, the paper systematically demonstrates the theoretical proof, application method, theoretical model, and etc. Furthermore, some positive analyses are used to inspect a Chinese insurance company.This paper obtains the following important conclusions:(1) It would be better to say that economic capital is a capital criterion to measure efficiency and risk than economic capital is just a capital criterion to measure risk. So, the solvency security of insurance company is not only the job of regulatory, but also the crucial job of enterprise management. And insurance company should recur to economic capital to process its interior solvency management.(2) Economic capital has been accepted by financial circle. The application of economic capital asks for proper measurement of assets and capital. However, the measurement is always been neglected and confused. This paper draw a conclusion that fair value is one of the best measurements to serve solvency management.(3) An evident disadvantage of fair value measurement is that the fair value of financial tools is variable, which causes the evaluation of solvency unstable when financial tools composing the majority of assets and liability. So, this paper put forwards that the evaluation of assets and liability on a certain time is not enough, and proposes some ways to deal with the problem how to describe solvency of insurance company more exactly.(4) Through the new solvency management system, an optimizing model of sales scale which can be used in operation management is established.