The Assets And Liabilities Of Life Insurance Company Measured On A Fair Value Basis

Since 1978 when China has employed the reforming and opening-up policy, its economy has not only obtained a fast development, but also became part of the world economic system. This integration trend is even more obvious in insurance under the WTO agreement. While more and more international insurance company groups are rushing into china, the local companies are struggling for breakthrough to survive. Under such circumstances the development of the local insurance market, especially of the life insurance market, presents the following characteristics:1. The number of market entities increases. The market expands with the speed much faster than that of the GDP. Until the end of 2005, china has totaled 93 insurance companies, including 42 life insurance companies, 35 non-life insurance companies, 5 reinsurance companies, 6 insurance groups or holding companies and 5 insurance property management companies.2. The kind of products increases. Under the global tide of financial liberalization and innovation, the Chinese life insurance companies now are providing universal life insurances, united-linked life insurances and the insurances with profits, for both insuring and investing purposes, in addition to the traditional insurances, the whole life insurances and the term insurances, which only protect against the dieing and surviving.3. To integrate into the world market is not only the process to let foreign companies come in but more importantly the process to let local companies go out and learn. China ping an insurance company's successful IPO in Hong Kong and china life insurance Company's success in raising 3,500,000,000 US dollars in Hong Kong and New York may be regarded as the first step for Chinese insurance company to walk out.4. The channels for insurance funds investing expand. The "Law of insurance, 1995" set a strict limit on the insurance funds investing channels. However since then the insurance companies have been suffering greatly from the continuous interest decreasing, so in 2000 the insurance regulatory commission began to loosen the restrictions on the insurance funds investing. In September 2005, the issuing of the"regulation on the investment of insurance funds abroad"has marked that we have loosened more restrictions and get ready to go into the world capital market.Meanwhile, under the accounting-rule-unifying tendency, we began to take more and more importance on the asset and liability than on revenues and costs when formulating accounting rules. Whether to take the asset and liability or the revenue and the cost as the core in rules formulating leads to a great amount of disputes. After suffering from series of accounting scandals, many specialists recognized that only the assets and liabilities exist substantially, and only the net asset will provide value increase. So the asset and liability view is more and more prevailing.Regarding the asset and liability view, the most importance is the confirmation and calculation of assets and liabilities related to transactions and the confirmation of earnings according to the changes in assets and liabilities. One of the basic theories of asset and liability view is the Capital Maintenance. The history-cost based accounting hardly defines clearly the concept of the capital maintenance, but the fair value accounting can give it a quite clear definition. In a well developed capital market, the fair value represents the amount distributable to the stockholders without decreasing the total value below the initial input, therefore the fair value is regarded as an earning. Fair value accounting is one of the most important factors of the asset and liability view. This thesis will focus on the application of the fair value accounting method in life insurance companies.The whole thesis consists of 5 parts.The first part is the theory part in which the basic accounting theories will be introduced,which divided into three parts; In the second part the theory of fair value accounting will be discussed in details,which divided into three parts; The third and fourth parts are the key parts of the whole thesis. In the third part it analyzes the accounting recognition in the life insurance companies, which divided into three parts; And in the fourth part it discusses the valuation of the asset and liability in the life insurance companies, which divided into two parts; The last chapter is a practical. It talks about the problems occurred when we Chinese life insurance companies use fair value accounting method,which divided into two parts.