Credit Derivatives Research On Accounting Issues In The Insurance Industry

On March 13,2007, United States's second-largest subprime mortgage lenders--New Century Financial Corporation verge of bankruptcy news spread around the world, so that the first time in New York stock market crisis in the subprime mortgage market has been hit. While investors were unaware of the seriousness of the crisis, the stock market to regain upward quickly, but it has demonstrated the risk of U.S. mortgage lending began to emerge. On April 2, 2007, New Century Financial filed for bankruptcy protection, becoming the largest U.S. real estate downturn of a mortgage lender in bankruptcy, Followed by a series of large companies bankruptcy news, and the financial crisis began to spread around the world, Scientists from various countries have also embarked on actively exploring the causes of the crisis.The global financial crisis affects all walks of life, the impact on people's daily lives is great too. In order to minimize the impact of financial crisis, and to avoid the recurrence of similar situations in the future, from the beginning of the crisis economists began to explore the reasons for its occurrence. Mainstream view is focused from the occurrence of the background, process and transmission mechanism analysis of the causes of the crisis, but ignores the crisis in credit derivatives accounting relationship. In fact, the credit derivatives accounting, particularly, the credit derivatives fair value measurement of the defects is closely related to the present financial crisis.Credit risk is one of the oldest risks in financial markets. The credit derivatives is a relatively new financial products. They appear in the 20th century and early 90's, and they have become an important component of the the credit market. In accordance with the definition of ISDA, credit derivative is a financial contract signed between the two parties, which allows investors to trade the risks associated with the value of the debtor's credit. The contract is usually signed by the counter, its profit and loss is uncertain, depending on the underlying reference credit event. Simply put, any deal the two sides through the contract in the form of a tool for the transfer of credit risk can become a credit derivatives.The different characteristics between Credit derivatives and the traditional credit risk management practices are:credit derivatives may separates, transfers and trades the credit risk of assets, but it does not change the economic attributes of the assets held by. In the 20th century, the late 90's, credit derivatives began to be used to based financial products'credit risk management. In just a few years, credit derivatives has grown into the most active derivatives in derivatives market. Credit derivatives, primarily through two types of financial products to transfer credit risk:The basis of credit derivatives and credit derivatives of internal structure.After the Toshitsugu loan crisis in 2007, some economists argue that accounting standards, the requirements for credit derivatives amplified the financial crisis. In the United States since the outbreak of the sub-prime crisis, the financial institutions to hold the related credit derivatives market have fallen sharply, but its large-scale provision for impairment losses and triggered the loss of market confidence in the relevant financial institutions, and thus there panic on their credit derivatives of selling.Financial institutions sink into a vicious circle that the transaction prices began to go down-extract preparation, subtract the rights and interests-panic-further fall in prices-must continue to increase provisioning and continue to subtract the rights and interests. Credit derivatives accounting, in particular, fair value measurement in a crisis caused by the cis-cycle effect, that the market rising, due to transaction price is too high, likely to cause-related overestimation of the value of credit derivatives; the market is low, due to transaction price is too low which often related to underestimate the value of credit derivatives.In the the special context of global financial crisis, The current fair value of credit derivatives measured weakness, mainly concentrated in the measurement mode, the table recognition and measurement of internal and external projects, as well as information disclosure, etc. One of the most important is the credit derivative fair value measurement method. This article aims at through the analysis of home and abroad credit derivatives, accounting standards or systems development situation, to identify credit derivatives accounting recognition, measurement and disclosure requirements of the shortcomings and deficiencies. Analysis the need for a change of the credit derivatives accounting in insurance, put forward the principles, direction and content of the insurance credit derivatives accounting reform. Finally, come up with supporting policies of insurance industry accounting system for credit derivatives, contributing to the perfection of insurance industry accounting system for credit derivatives to ensure that finance and insurance and other related industry's sustained and healthy development.The prolegomena describes the basic issues of this paper, the current research situation and the significance of study. Also proposed aims, ideas and methods of study. The first part is to introduce definitions, characteristics and classification of credit derivatives and its status of development at home and abroad, despite the development, but because in the early stages of exploration, so there are many problems. The second part describes foreign credit derivatives accounting standards or systems, focusing on credit derivatives FASB and IASB accounting recognition, measurement and disclosure requirements. It also puts forward the short coming of credit derivatives accounting recognition, measurement and disclosure requirements. The third part represent the development of credit derivatives in insurance industry, the insurance industry through the development of credit derivatives constraints as well as credit derivatives, insurance accounting on theoretical analysis of the impact of the insurance industry pointed out that the accounting for credit derivatives engender risks to the insurance industry. The fourth part come up with the need for a change of the credit derivatives accounting in insurance, put forward the principles, direction and content of the insurance credit derivatives accounting reform.The fifth part analysis of the causes of China's credit risk and credit derivatives, accounting system, the status quo of supporting policies. At present, the credit derivatives market is still in the exploration and the initial stage, is facing rare opportunities for development, there are some constraints, the need for insurance market participants to work together, based on China's insurance industry practice, actively absorb learning from international experience, from the outside the environment, long-term planning, laws and regulations, market supervision, professionals in areas etc, providing favorable conditions for the healthy development of our country's credit derivatives market.The innovation lies in this:First, separate credit derivatives accounting from,the financial derivatives accounting to study, the proposed recommendations and measures more specific and operability; Secondly, the combination of the current financial crisis, development, and timely follow-up access to the latest information, carry out the theory and practice docking with a view to measures and the proposal would be more feasible.