Reaserch On The Solvency Dynamic Early Warning And Regulatory Of Life Insurance Companies In China

The solvency of life insurance companies refers to the payable abilities of allthe maturity debts and future obligations that life insurance companies shouldundertake. The solvency level is directly related to the stable operations and marketcompetitiveness of life insurance companies. However, the insolvency problems oflife insurance companies are not uncommon. From a global perspective, there havebeen the phenomena of insolvency in life insurance companies, such as USA, Japan,Britain, Australia and other developed countries. In China, the insolvency problemshave already emerged in the late1990s, and the remnants loss of interest spreadbecomes the main reason for the insolvency of life insurance industry, especially inChina Life Insurance, PingAn Life Insurance and Pacific Life Insurance. Recently,the solvency crisis of life insurance companies is still frequent, and the solvencyadequacy ratio has declined, such as PingAn Life Insurance, TaiKang Life Insurance,XinHua Life Insurance, HuaTai Life Insurance, ZhongYi Life Insurance, etc. Overall,the solvency of the entire life insurance industry should be further improved. Whilefacing with the situations of insolvency and decline, the insurance regulatorydepartments also exist certain defects to supervise the solvency, including lack ofsolvency early warning mechanism, immature of regulatory evaluation system,imperfection of regulatory execution system and regulatory constraints mechanism,incomplete of regulatory information disclosure system.Taking account of two aspects about the life insurance companies and theinsurance regulatory departments, strengthening the solvency regulatory system,especially the early warning mechanism is essential. The establishment of earlywarning mechanism can not only point to the direction of improving the level ofsolvency, but also lay a solid foundation for perfecting the solvency regulatorysystem. Therefore, the core content of this paper is to build a dynamic solvency earlywarning mechanism of life insurance companies. On one hand, it can be used by lifeinsurance companies to examine their own solvency problems timely, and understand the main factors that affect their solvency changes in order to developappropriate improvement measures and achieve early warning; On the other hand, itcan also be used by insurance regulatory departments, not only to understand thereasons for solvency change of the overall life insurance industry, and formulate themacro-regulatory policies, but also to strengthen the regulatory to the insolvencycompanies, and formulate the micro-regulatory policies. On this base, it also needsto further improve solvency regulatory system of life insurance companies with otherrelated institution-building to enhance the solvency level of life insurance companiesin China.As a main line to build the solvency dynamic early warning mechanism of lifeinsurance companies is, this paper is divided into four parts: theoretical basis, currentsituation and problems, model building, conclusions and recommendations.Researching on the solvency dynamic early warning and regulatory system oflife insurance companies, the first to be considered is the theoretical foundation. Thesecond chapter, which lays the foundation for the analysis of the full text presentsdemand theory, competition theory, asset allocation theory, risk theory, early warningtheory, bankruptcy theory, market failure theory, regulatory of game theory, dynamicgeneral equilibrium theory and dynamic enterprise theory.Secondly, the third and fourth chapters present the current situation andproblems, and this part is the background that the solvency early warningmechanism of life insurance companies establishes. One of the reasons to researchon the solvency early warning mechanism of life insurance companies is that thesolvency of life insurance companies often face the threat of falling, and affect thenormal operation of the life insurance companies, and early warning mechanism cangive an early warning to the solvency crisis of life insurance companies. Therefore, itshould first clear that why the solvency of life insurance industry has declined, aswell as how to solve this problem in China. From the development of the lifeinsurance companies over these years, loss of interest spread, too fast businessgrowth, shortage of funds injections, adverse product structure, and irrationalinvestment structure have been the restricting elements to improve the solvency oflife insurance companies. However, to solve these problems, each company tends to take three typical measures: improving the financing system, restructuring businessand broadening investment channels.The other reason to research on the solvency early warning mechanism of lifeinsurance companies is that it can help to perfect the solvency regulatory system. Asan important part of the solvency regulatory system, early warning mechanism canguide the insurance regulatory departments to make effective regulatory decisions.Based on this, this paper analyzes the development process, the current situation andexisted problems of solvency regulatory of life insurance companies in China, anddraws some advanted lessons from foreign solvency regulatory system, whichinclude static solvency regulatory approaches, such as insurance regulatoryinformation system, financial analysis and solvency tracking system, statutorysolvency margin, risk based capital, etc, and dynamic solvency regulatoryapproaches, such as cash flow testing, dynamic solvency testing, dynamic financialanalysis, etc.Furthermore, the fifth and sixth chapters present model building. Researchingon the solvency early warning mechanism of life insurance companies, the mostcritical part is to find the main factors which affect the solvency levels of lifeinsurance companies. Starting from both internal and external aspects, the paper hasanalyzed a variety of factors that may affect the solvency level of life insurancecompanies. Based on this, combined with the relevant foreign solvency earlywarning mechanism, it ultimately selects some representative, measurable factors inthe solvency early warning model. It uses the ordered response model with twophases. The result shows that the influence factors of the solvency are different indifferent phases, which means that the indicators composition of the early warningsystem is different. Therefore, the solvency early warning system of life insurancecompanies is a dynamic process, and the feature of dynamic is more obvious,especially in long term. But the dynamic process is also following certain rules, andthere are some relatively stable factors. In short term, the indicators composition ofthe early warning system will still include the factors which significantly affect thesolvency in two phases: the assets recognition rate indicator, liquidity ratio indicator,total assets growth rate indicator, retained premium growth rate indicator and company development coefficient indicator.Finally, the seventh chapter presents the conclusions and recommendations. Itsummarizes the research results of the full text and raises four recommendations toperfect the solvency early warning and regulatory system of life insurancecompanies. Firstly, to establish the static and dynamic system of early warning andregulatory, which includes optimizing the solvency early warning indicators,improving the solvency assessment methods, and regulating dynamic solvencytesting; Secondly, to strengthen the construction of the solvency regulatory, such asaccounting system, information disclosure system, life insurance actuary system,on-site inspection system, and credit rating system. Thirdly, to improve themechanism of the solvency risk management, especially improve the asset andliability management. Fourthly, to enhance the abilities of solvency regulatory, suchas regulatory concepts, regulatory approaches, regulatory support measures, and soon.