Research On Capital Management Of Insurance Company

The special operating contents and mechanism determine that insurance company highly relays on capital. Capital adequacy is the core part of insurance supervision in every country, so the development of insurance company must be constructed on the basis of capital adequacy. For insurance company, keeping enough capital can strengthen its ability of managing risks and enhance rating agencies’and policyholders’ belief on it, which is much helpful for insurance company’s growth. However, capital is a kind of expensive resource. Keeping capital will cause corresponding costs, which determines that insurance company could not keep capital endlessly. In face of the contradiction between capital needs and capital costs, insurance company has to manage capital, which means determining the optical capital and capital structure to maximize insurance company’s value under the condition of meeting supervisor’s request.The capital management of insurance company consists four parts:adequacy management, cost management, strategy management and financing management. The first step of managing capital is setting the standard of adequacy. Economic capital is the most advanced method in the area of risk evaluation and is also the trend of global insurance supervision. This paper takes economic capital as the tool of measuring the adequacy of insurance company’s capital and does research on the relationship between the aim of capital adequacy and the aim of capital optimization. Economic capital and optimal capital may be different which means insurance company has to face to conflict of capital adequacy and value maximization. In order to solve the problem, insurance company should allocate capital properly, lower capital costs and improve capital efficiency. The shortage of capital requires insurance company to construct its assessing system on the basis of capital costs. EVA is an important tool for insurance company to allocate capital to the most profitable branches and business lines, which can help insurance company to achieve the aim of lowering capital costs and improving capital efficiency. Meanwhile, capital is the most important factor that affects insurance company’s profit model. For improving capital efficiency, insurance company must combine capital restrain and development strategy together. It means that insurance company should choose the profit model which matches its capital to guarantee the capital is used sufficiently. Capital has a nature of expanding. When the business scale reaches a certain level, insurance company needs to finance. Financing in a proper manner is an important part of insurance company capital management. Insurance company should plan financing ahead of schedule according to the business development.This paper does research on insurance company capital management with economics, statistics and insurance. There are eight chapters.Chapter one is the introduction of the paper. It presents the topic to be researched, the background for choosing the topic, and the purpose and practical significance of studying on this topic. The relevant literature on the topic is reviewed and summarized, and a brief explanation is given regarding the logical sequence, the research approaches used, the structure, and the main innovative ideas.Chapter two is the theoretical foundation of the whole paper. The property of capital is discussed on basis of economics and management theory. Above this, this chapter analyzes the relationship between capital and insurance company. Meanwhile, this chapter defines the four forms of capital costs, the significance of capital management, the content and aim of capital management.Chapter three introduces economic capital and the solvency framework under economic capital. It introduces the concept and history of economic capital. Then, the way of computation and management of economic capital is summarized. At last, this chapter researches the influence that the solvency framework under economic capital may cause to insurance company and insurance industry, and gives some viewpoints on the implement of the new solvency framework in China.Chapter four constructs a model for evaluating insurance company’s value, and discusses the optimal capital of insurance company and also the factors that affect the optimal capital. Moreover, this chapter compares the economic capital and the optimal capital of insurance company, analyzes the way that different factors influence them. Finally, it researches the usage of EVA in details. Chapter five defines the concept of profit model of insurance company and introduces the main kinds. It analyzes how the profit model is influenced by capital constraint. At the same time, this chapter discusses group model and differentiation model according to different capital that insurance company has.Chapter six researches the problem of financing of insurance company. This chapter discusses cons and pros of different financing methods. It analyzes IPO of insurance company especially and encloses the benefits and risks.Chapter seven analyzes the current situation of capital management in China and finds out the problems existing in China insurance market. It also gives some suggestions for improvement.Chapter eight is the end of this paper. It concludes the former research and gives the final conclusion.