Research On The Asset Allocation Of Insurance

It is important to focus on the asset allocation of insurance to improve investment performance and solvency as the insurance industry is developing.Based on mean-variance model,we tried to form a empirical study system on insurance asset allocation from both strategic and tactical dimensions.The innovations of this paper contain two parts.In theory we modify the measure of expected return and risk of mean-variance model,which could provide more accurate guidance on investment.Meantime this paper systemly explore asset allocation's 3W(What,Why and How).In practice we try to apply and expand classic asset allocation theory.Firstly dividing asset allocation research into different aspects,strategic asset allocation(SAA)and tactical asset allocation(TAA)helps to understand asset allocation theory systematically.Secondly combining asset allocation model with macro economic indicators and market performance shows the way to apply our model and in the meantime tests the contribution of asset allocation to portfolio performance.Thirdly using asset allocation theory to guide insurance asset management could promote both theory and practice work.In this paper,we analyze the framework and content in insurance asset allocation,study on the linkage between strategic asset allocation and tactical asset allocation,and also explore the difference between insurance and non-insurance financial institutions asset allocation.On SAA study,we build up an expected return-risk model using a certain time expected return and VAR(CVAR)to meet actual need.It is obvious that a certain time(1-3 years)of expected return is more efficient than a long-term(more than 10 years)historical average return for mean-variance measure.And also VAR(CVAR)is better than variance because VAR(CVAR)focus on downside risk by measuring the potential loss in a certain probability.On TAA study,using macro-economic indicators(GDP,CPI,loan rate)we identify 8 different states of economy and using mean-variance parameters of the 8 states to improve SAA return.Here we build efficient frontier of 3 different assets(stock,bond and cash)in 8 states and given the investor's risk aversion to select our best asset allocation portfolio.By calculating the accumulated return of the best allocation portfolio,we find this method of TAA could significantly improve the return of SAA.Finally,This paper also carried out an empirical research on the implementation of SAA and TAA from the two point of styled asset allocation and industry allocation.Investor could identify different level of risk in more styled assets to improve portfolio structure and performance.We build an optimal portfolio of 10 different assets in 8 states,which leading to a better accumulated return than that of TAA.Meantime using industry PMI as prosperity indicator for industry selection,our industry optimal portfolio could continuously exceed market index performance in the long-term.