An Empirical Study On The Solvency Of Property Insurance Company In China

The insurance industry is a special industry which operates risks. It will compensate or pay the insured (or beneficiaries) by charging a risk premium of capital when the insurance contract matters occur in the future. Among of the modern society mechanisms, the insurance has become the important mechanism which can reduce the risk and losses of the national economy, protect the national economy developing healthily and stably. Since the 1980's, because of the macroeconomic impact or natural disasters, many insurance companies in the world have suffered from insolvency crisis and endangered the verge of the bankruptcy. For example, the 1992 Andrew Hurricane in United States has led many insurance companies fall in the insolvency; between 1997 to 2001, there are eight insurance companies go bankrupt due to insolvency in Japan; in 2008, the subprime mortgage crisis triggered the upheaval of the international financial market, and also brought heavy losses for the international insurance industry. The giant of U.S. insurance--- AIG reached the brink of bankruptcy due to a huge funding gap. According to the statistics, there are more than 6,000 existing insurance companies in America, and a group of insurance company goes to bankruptcy because of the insolvency every year. On July 15, 2008, the Chairman of CIRC Wu Dingfu revealed that there are twelve insurance companies appear insolvency as of the end of June 2008, Compared with the beginning, there has increased two companies, and some insurance companies has a serious shortage of solvency. According to the data from the China Insurance Regulatory Commission Web site terms, the insufficient solvency of insurance companies account for about 11.7% of the total number of insurance companies, the Insurance Solvency become a hot issue to discuss community once again. The insolvency of the insurance company will not only jeopardize the stable development of the insurance industry, but also will endanger the entire financial system, even the development of national economy. So, studying the solvency of insurance companies, using appropriate methods to monitor the solvency of insurance has some practical significance and the value of application.In recent years, many scholars have achieved certain results by carrying out some exploratory researches from the solvency supervision, the factors of solvency and others. However, most of them tend to qualitative analysis, only described the problem of insufficient solvency from theory. The literature which using quantitative analysis methods and the econometric models to assess the solvency of China's Non-life insurance industry is relatively little. This paper is based on the historical data of the China's non-life insurance market, using the ratio model and the long-term aggregate risk model to verify the related values of the current China's insurance industry solvency regulatory system. The empirical results show that the minimum solvency margin requirement of China's non-life insurance industry solvency monitoring indicator system is low, the actual requirement is 49.72% of net premium income, 55.59% of net amount of compensation; the minimum registered capital requirement is high, which should be four million Yuan. As the model data from China's non-life insurance market, so, the results have certain rationality, and can provide justifiable reference to the insurance regulators and insurance companies.