Analysis And Management For The Main Risks Of China's Insurance Sector

World Bank and International Monetary Fund define the Financial Stability as an environment that prevents a large number of financial institutions from becoming insolvent and conditions that would avoid significant disruptions to the provision of key financial services. Insurance industry plays an important role in economy. It will make a great damage to the economy if a large number of insurance companies go into bankruptcy. There is only a little literature about how to prevent lots of insolvencies of insurance companies. Foreign studies focus much on depicting the exact case of insurer's failure. Chinese insurance industry is in the primary stage and there is no insolvency till now. Few Chinese scholars set foot in this topic.This thesis defines the risks which could lead many failures of insurers as Main Risks of Insurance Sector (MRIS), studies the MRIS in Chinese insurance sector and gives some advice to manage them. The main contents and conclusions are as follows:1. Finding that MRIS include Under-pricing Risk, Catastrophe Risk, Investment Risk, and Surrender Risk because of policy-holders'fears through case study.2. Using loss ratio as the proxy variable of insurance price and weighted least squares (WLS) approach, presents some empirical tests of the relationship between the premiums income and both the loss ratio and the expense ratio of the non-life insurance companies in China, Japan and United States. The thesis found price competition could bring more premiums but it reduced the companies'profits in China, while the decrease of expense ratio could bring more premiums and profits at the same time. Hence, the measures to decrease expense ratio and limit excess price competition should be adopted. The thesis also estimates the applicability of the measures to control the excess price competition.3. Designing a model to prove the life insurance companies would set a high pre-set interest rate to attract premiums and adopt high risk investment strategy without pre-set interest control.4. Applying the econometric method to give an empirical test of the applicability of the pre-set interest control policy.5. Finding that lack of investment tools and investment skills are main factors which lead the investment risk of Chinese insurance industry.6. Through reviewing the guaranty funds established in other regions around the world, give some advice to reduce moral hazard and strengthen the policy-holder protection mechanism in China, such as combination of"pre-assessment"and"post-assessment", limited coverage, independence of the insurance guaranty fund and etc.Finally, the thesis studies the consistency of the author's advice and the financial constraint theory.