Insurance Industry, Risk Management And Control. On The Financial Operating Conditions

On October 20, 1949, People's Insurance Company of China was founded in Beijing, and to date our national insurance business has passed 60 years. Surveying our national insurance development, we find its business modes have experienced a journey of mixed management, divided management, and comprehensive management. Comprehensive management pattern is not invented by foreign developed countries, but the natural result of social and economic development. When work division and cooperation in financial system become more and more complex, mutual reliance and restraints between different subsystems and levels of financial system become increasingly distinct.Since 1980s, UK, Japan, France, US, and Canada accomplished transformation from financial divided management to comprehensive management through national legislation. In 1993, the financial industry in our country began to enforce the system of divided management and divided supervision. In the past few years, the divided management mode has played a very important role in stabilizing our national financial and insurance situations.In 2008, the sub-prime mortgage crisis broke out in United States, and almost imperiled every country in the world. Meanwhile, the financial comprehensive management mode drove this crisis further in scale and depth. Due to incorrect liability management strategies and negligence from American regulatory departments, American International Group (AIG) declined from a world insurance giant to an enterprise at the edge of bankruptcy. In the same year, Ping An Insurance Company invested 23.8 billion yuan (currency converted value) to acquire equity of Fortis Group, but unfortunately rendered itself into a negative position to prepare 15.7 billion yuan for value reduction because Fortis had concealed its Collateralized Debt Obligations (CDO). It can be said that Chinese insurance industry is relatively fortunate, as in the initial stage of domestic financial comprehensive management, we early enough have foreseen risks involved, so we slowed down our paces to carefully analyze our mechanism again and combine our own conditions to gradually and systematically execute insurance comprehensive management. But unfortunately, this financial crisis has damaged the market image and credit of insurance industry, and with the reduction of insurance applicants purchase power, a lot of conventional insurance customer sources have been lost.The present article consists of five sections: Section 1, formulating on definition and features of comprehensive management; Section 2, introducing financial comprehensive management, the history and current conditions of insurance industry; Section 3, analyzing risks in comprehensive management of insurance business; Section 4, researching diagnosing risks of insurance comprehensive management with actual cases– AIG and Ping An Insurance Company of China; Section 5, presenting effective risk administration approaches to our national insurance comprehensive management.Under the conditions of financial comprehensive management, insurance industry may meet regulatory risks, internal control risks, legal risks, and investment risks, etc. To regulatory risks, we should reinforce information disclosure system, consolidate coordination mechanism of regulatory institutions to establish information sharing system, and we should resort to industry self-regulation and social surveillance besides those from administrative departments to prevent relevant risks. To internal control risks, we should improve our corporate management structure, preclude connected transaction, establish internal control system suitable to insurance company's conditions to safeguard against risks from inside the company. To legal risks, we should revise and complement financial regulatory legislations, complete laws and regulations for supervising financial holding companies to avoid risks thoroughly from the roots. To investment risks, we should prevent mismatching risks in assets and liabilities, perfect investment structure to avoid interest spread loss, or hedge risks with insurance risk securitization.This article, by applying relevant risk knowledge, is to put forward effective risk prevention measures for financial comprehensive management in insurance industry, and expects to offer some administrative suggestions and methods on risks of comprehensive management being underway or to be adopted in our national insurance industry.