Research On The Operation Mechanism Of Catastrophe Compensation Fund Of China

Recent years, there are growing catastrophes all over the world, and also the increasing losses following behind. China is always a country seriously stricken by Cats;especially the "Wenchuan" earthquake (May,2008) caused magnificent losses in human lives and economy. But in china the main way to deal with these Cats always lies in the use of fiscal funds and social donations, which is usually of limited effects.On the contrary, other countries like New Zealand, America, Japan, Taiwan District and several countries in European Union have established more successful compensation systems for Cats. Recently, heated and extensive debates were carried out all over our country upon the foundation of Chinese catastrophe compensation system. Based on comparison and summary of those extant systems, this paper, develops investment principles, asset allocation, asset risk management and investment performance evaluation matching with the catastrophe compensation fund's investment objectives, to offer some help in future.The main context of this paper is composed of nine parts:the first chapter is the Introduction section, which mainly describes the basis of this paper, including the feasibility of catastrophe compensation fund in China, catastrophe Compensation Fund's organizational structure, and the research methods and logical structure of the article. The second chapter describes the sources of financing catastrophe compensation fund, different sources of funding with different natures, which have different requirements for investment; and then discusses the investment objectives of catastrophe compensation fund. The third chapter deals with the funding requirements of catastrophic Compensation Fund. First discusses how to measure catastrophic losses, through a comparative analysis of various types of losses metrics, to get a manner which is a timely manner to measure the loss of payment methods; and then explains the operation costs of catastrophe compensation fund, including fund management fees, fund custodian fees. Chapter IV spells out the catastrophe compensation fund's investment operations from both the Cat's investment principles and investment ways. Catastrophe Compensation Fund should not only meet the general investment principles, but also with its own particularities to achieve the balance among mobility, security and profitability. Chapter V starting from the top-down asset allocation method, indicates the asset classes and the risk of assets, and then sums up other countries invested in asset classes and ratio. Chapter VI discusses the risks of a single asset and single asset allocation, due to liquidity and safety requirements, a higher proportion will invest in bank deposits, and sign a agreement with the bank to determine the interest rates on deposits in order to manage risks;bonds through diversification and risk asset limits to spread risk, as well as passive investment strategies and active investment strategies to manage the investment risk; also discusses stocks, funds and overseas investment risk management. ChapterⅦexplores the investment profit distribution program by analyzing and comparing the profit distribution program of other countries. ChapterⅧdescribes the performance evaluation methods, as a commercial operation fund, catastrophe compensation fund must have a good incentive mechanism to encourage fund managers to preserve and increase the value of the fund, because of the special of catastrophe compensation fund, common indicators need to be amended. ChapterⅨsummaries the whole paper and points out that the proportion of investment and the proportion of compensation need further study.This paper focuses on the operation of the catastrophe compensation fund, conducting the basic principles of operation, organizational forms, investment tools selection and performance appraisal and other basic ideas. The main findings are:first, under the consideration of safety, liquidity and profitability, I think that catastrophe compensation fund should be based on security, maintaining adequate liquidity to achieve a higher profit. Must deal safety, liquidity and profitability with dynamic and integrated, avoiding too much emphasis on one particular aspect to neglect the coherence among them.Second, the social security fund and other public funds think market mechanism as the core, we can learn from them, under the spirit of open, fair and impartial, through the competition to attract asset managers to participate in catastrophe compensation fund asset management and operations. Thirdly, we believe that the compensation fund should invest mainly on bonds, especially Treasury bills and bonds fund, and must strictly limit invest on riskier and less liquid assets, for example, real estate, futures funds, options. But as long as the investment ratio on high risk assets will be under control, and making full use of commercial banks or central banks and the financial sector short-term financing, real estate industry is also a catastrophe compensation fund investment tool.Fourth, I believe that catastrophe compensation fund should be maintained in the question-and macro-balance and relatively stable choice, cannot be too radical, to take undue risks. Fifth, I believe that Sharp ratio is a good choice to evaluate the performance of the fund and facilitate comparisons between the same industry, because this factor not only consider the returns, but also consider the risks..In addition, catastrophic compensation fund taking certain social responsibilities and obligations enjoys a particular tax and preferential policies, therefore separate the assessment of government accounts and social accounts. The government accounts assessment focused on safety and liquidity, as well as social responsibility, while the assessment of social accounts should be more emphasis on its financial performance. 3...