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Asset-liability Management Of The Use Of Life Insurance Companies

Posted on:2004-10-31Degree:MasterType:Thesis
Country:ChinaCandidate:J LiFull Text:PDF
GTID:2206360092985125Subject:Finance
Abstract/Summary:PDF Full Text Request
This thesis focuses on the study of Asset Liability Management (ALM) for Chinese life insurance companies. There are two issues the thesis dedicates to discuss: one is the reason why Chinese life insurance companies need to develop ALM system; and the other is the method that how Chinese life insurance companies build ALM system under the present condition of the industry. Responding to the first question, the thesis draws the conclusion that Chinese life insurance industry has necessity and possibility to develop ALM system, which is based on the deep analysis of the theory and technique of ALM and the study of the reality of Chinese life insurance industry. As for the second question, the thesis puts forward some ALM techniques and ALM organization model, which are adaptable to Chinese life insurance companies. At last, the thesis discusses the prospect of ALM in Chinese life insurance industry.This thesis includes four chapters as the following:The first chapter expounds the developing process of ALM and its main aims. Firstly, the thesis gives the definition of ALM. Because ALM is relevant to the sound management of asset portfolio cash flow and liability portfolio cash flow of any institution that invests to meet liabilities, so different financial institutions have different ALM management practice. From the ALM practical definition of Society of Actuaries, the thesis argues that by carefully coordinating its management of assets and liabilities, a financial institution can operate more soundly and profitably, which is also the argumentation of this thesis. And then, the thesis introduces the developing process of ALM from a historical perspective. ALM initially developed from banking industry. Due to the high interest rate and interest fluctuation in the 1970s in America, ALM is used for American insurance industry to control the interest rate risk. Inthe third section, the thesis analyses ALM three major objectives, which are, managing ongoing technical solvency, managing risk exposures arising from variations in market interest rate, and complying with the regulatory requirements.The second chapter discusses some ALM techniques and their employment in life insurance companies from a technical point of view. First, the thesis introduces several methods of interest risk measurement including price value of basic point, duration and convexity. And then the thesis discusses two typical ALM techniques called cash flow matching and gap analysis. Since life insurance companies have special requirement to ALM for the uniqueness of its liability, the second section discusses the ALM technique that is suitable to life insurance companies with the example of gap theory. A conclusion drawn here is when interest rate decreases, if the duration and convexity statistics for an asset portfolio have higher values than those for the associated liability portfolio, asset values will increase faster than liability values; and vice versa. In the third section, the thesis introduces some ALM methods currently used by life insurance companies, including elasticity testing, cash flow testing, dynamic solvency testing, risk based capital method and financial condition report.The third chapter analyses the necessity and possibility of ALM systematic development in Chinese life insurance industry. Firstly, this chapter analyses the present interest rate condition, which involves problems of interest loss of Chinese life insurance and interest-sensitive life insurance products. In order to avoid interest loss for life insurance companies, the fundamental method is apply ALM to coordinate asset portfolio and liability portfolio. On the other hand, though the newly developed interest-sensitive products weaken the affiliation of market interest rate to policy credit rate at the stage of pricing, it is more difficult to manage the product cash flow of these new products. So ALM is ofnecessity. Secondly, the problem of use of insurance fund is another indispensable factor to develop ALM in Chinese life ins...
Keywords/Search Tags:Asset Liability Management, Asset Portfolio, Liability Portfolio, Cash Flow Matching
PDF Full Text Request
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