Study On Fair Value Measurement Of Insurance Liability

Liabilities of insurance industry are different from the one of others, the most special of their liabilities are undefinitude. It is required to estimate the insurance reserve of payment and compensation in the further. The undefinitude includes three aspects: if the undefined risk happens; when it happens; and the amount of lost. In order to pay for these insurance risks in the further, insurance industry must set up policy teserve according to the risk. Policy teserve is the main liabilities of insurance industry. So, the method that we select to measure them directly determines whether we can measure liabilities of insurance industry exactly.China insurance has developed very fast after it is resumed. It had been once closed down twenty years. First, Insurance in China has accumulated a great deal of insurance fund; second, there are more and more insurance industries in China. Foreign insurance industries entered China, and the region of management and the scope of business has been extended even more; Third, insurance industries have arranged to go on market, to raise money and enlarge treasury scale; Finally, the assets of insurance industries is allowed to invest capital market, such as stocks.The flourishing development of insurance industry and variety of insurance business made insurance accounting very complex, and also need high quality financial statement which can reflect fair and equitable financial position and operating results, that can meet different user's requirement.Fair value is the only relevant measurement basis when we measure insurance liabilities. There are many benefits if we use fair value measure insurance liabilities: avoid accounting mismatch of insurance accounting; improve transparency and comparability of financial statement of insurance industry; improve the efficiency of financial supervisor; avoid the risk which is brought to insurance industry when interest rate changes.Insurance liabilities have no open second market, so we can only rely on estimate to measure their fair value. This dissertation try to explore the method of capital costs and option pricing to measure fair value of insurance liabilities, which also used in the field of financial instrument.Although fair value is the most ideal measurement basis about insurance liabilities in the further, but now, high measure cost, lack of full-developed market and law environment, and interest rate of China has not been determined by market. All these limited the use of it .Insurance industry should work out two financial statements, one according to GAAP(Generally Accepted Accounting Principles), the other according to SAP(Statutory Accounting Principles), to satisfy the requirement of the department of insurance supervisor and other users.