Asset And Liability Management Of Life Insurance Companies Under The New Accounting Standards Research

With the release of the newly issued accounting standard for business enterprise, this dissertation focuses on insurance companies and investigates problems involved with asset liability management after the application of such standard,and studies multiple issues including accounting mismatch of asset and liability,strategic management of asset,and fair value measurements of debt.In introduction,the background of a full-scale application of the newly issued accounting standard for business enterprise and its characteristics are briefly summarized;fair value measurements are the major novelty in the newly issued accounting standard and an important step in moving forward to achieve a common international objective as well.To insurance industry,the introduction of standard for insurance contract reflects the changes in common international objective too. Because this standard is formulated based on the International Financial Reporting Standards 4(IFRS4) and specific situation of Chinese insurance industry, discussions are provided on the background of IFRS4 insurance contract,therefore facilitating the next step discussions in detail.Taking the example of 2007,50.33 percent of assets under the newly issued accounting standard were measured based on fair value,however the debt was measured based on book value,resulting in severe accounting mismatch.To resolve such accounting mismatch,one approach is to adjust asset structure,that is,to strategically mange assets.Another approach is to use fair value measurements.Since two research topics of this dissertation belong to basic research of asset and debt management of life insurance companies,it is necessary to summarize in introduction the history of development and the current status of asset liability management for both domestic and international life insurance companies.At the current phase,asset liability management in life insurance companies faces risks of economic mismatch mainly represented by interest risk,and risks of accounting mismatch due to changes of accounting policy.The accounting mismatch is mainly driven by application of the newly issued accounting standard.In the second chapter,two standards with important influences on the asset liability management are studied by application of deductive approaches.They are Corporate Accounting Standard 22:identification and measurements of financial tools and Corporate Accounting Standard 25:insurance contract.First,it is pointed out that application of fair value enables accounting mismatch from measurements of financial tools.Second,the characteristics of cash reserve of current life insurance companies are deduced and analyzed.In chapter three,the concept of fair value,attributes of measurements and associated theoretical characteristics are discussed with considerations of how fair value is initiated and its background.Based on these,the measurement approaches for fair value of financial tools are studied with emphasis.In chapter four,the gained perspective of fair value allows to revisit the current pricing methods of existing products and the measurement methods of cash reserves for insurance companies.The study indicates that the measurement lacks "fairness" mainly because it neglected various values of plug-in options.In Chapter four,according to the newly issued accounting standard,quantitative studies are directed toward the difference of strategically managements of asset among various life insurance companies by using financial data and reports. Generally,lack of emphasis on strategic asset managements is found in life insurance companies.Short term gain is unfortunately still the main target of the current asset management.In Chapter five,discussions are provided for fair value measurements of debt with specific focus on evaluation of participating life insurance policy.It is found that application of fair value measurements is constrained by their underlying assumptions and the high cost of fair value measurements poses problems in their applications.Currently a feasible approach may be to apply risk adjustment via dynamic discount rate.