Analysis Of Insurance Company Solvency Based On Stochastic Frontier Model

Insurance industry is a special profession that conducts the risk, the security and stability of its operations has a direct impact on the stability and development of country economic. In modern society, the insurance is essential to guarantee economic circulate and to stabilize society development. With the spreading of insurance industry in recent years, the research of insurance solvency regulation has attracted increasing attention, solvency margin has become the corn of solvency regulation, and the solvency prediction is of practical significance to control solvency risk.How to construct a reasonable model for calculating solvency margin is the common concern of Chinese and foreign scholars. In the actuarial basis, foreign scholars have constructed different theoretical models for calculating solvency margin under different assumptions, such as ration model, short-term aggregate risk model, bankruptcy theory model and comprehensive model. Meanwhile, statistical methods include multivariate analysis, nonparametric analysis and neural network methods. Data envelopment analysis method (DEA) developed by Charnes and Cooper estimate the effective frontier using mathematical programming method, which is not a statistical model established, it can not do more statistical analysis. Stochastic frontier approach (SFA) is a kind of parameters method based on production frontier. Stochastic frontier model can not only overcome the general trend of simple average return, but also make statistical analysis in statistical probability.This paper first introduces the stochastic frontier model and Bayes estimates of the frontier function, and describes the concepts of insurance company solvency. Meanwhile, we analyze the macrocosmic and microcosmic factors influencing insurance solvency, and we introduce several typical econometrics models for solvency prediction. Based on the influencing factors, we introduce the indexes of insurance company solvency appraisement, and have applied stochastic frontier models in solvency appraisement by choosing 15 insurance companies including 8 life insurance companies and 7 property insurance companies with complete financial report (the date is from 2006～2008 china's insurance yearbook), which accurately calculate the impact on solvency, and give the estimated solvency ratio of the frontier in probability each year. Lastly, we analyze the solvency efficiency of the insurance companies, to discover the most important factors influencing solvency timely. The work of this paper is of significance for solvency regulation to improve the regulatory efficiency, and provides a new idea for the stochastic frontier model applied in the solvency analysis to promote the steady and sustainable development of insurance industry.