On The Insurance Company's Financial Risk Management And Strategy

In the 1990s, many financial entities faced a serious problem of financial risk and supervision. Among them are many insurance companies, like Executive Life,Mutual benefit,Confederation Life and many Japanese life insurance companies. How to control the risk has attracted the attention of the insurance industry and become the essential way to improve the status and competitive ability of those insurance companies. On one hand, the insurance companies innovate some new kinds of commodities, like variable life insurance, variable annuity and universal life insurance, which have a higher demand of the risk management. On the other hand, the insurance companies are engaged in the various finance activities through the way of acquisition, merger and combination. The multi-operation has also improved the importance of the risk management and makes the risk management more complicated. The insurance companies in China are lack of the risk management methods and the supervisor has simple ways to supervise it. The insurance companies only have simple capital structure and their financing ability is very poor. At the same time, the investing field has developed slowly and lately. The insurance companies are troubled with the poor risk management under the situation of the reform and opening to outside policies and are poorly-performing under the intensive international pierce competition. Therefore the financial risk management became the important way among the various risk management methods. The insurance companies have made a structure of the financial risk management. The author of this essay has a discussion of this point in use of the western financial management theory.The financial risk management is the topic of this essay. The essay is included in the following five chapters:Chapter 1 discussed the general financial risk's definition, deep meaning and running rule and define the financial risk as the risk of financing,investing and cash management caused by the debt financing. Then the author discussed the special situation in the insurance companies. Due to the special operation and the special financial statements requirement of the insurance industry, as well as GAAP and SAP, financial risk management must be in accordance with the methods. The author referred in the essay that financial risk management is on the foundation of the financial management based on the risk. Chapter 2 discussed the financing risk with the reference of the China's present situations. Public-offering and the use of the foreign capital will be chosen as the way to finance. The author took the Yingke's offering in the Hongkong market as a good example. Under the prospect of the corporative insurance companies, the author referred the measurement of the capital and some detailed way to manage risk. The important basis is the internal and external way to control the financial risks.Chapter 3 discussed the way to control the investing risk. The author discussed various investing theories and put out the multi-management model of the insurance company's investing. This model has two levels: the first level is the comprehensive management of the asset-liability in the insurance company. The second level is the structure of the investing model using the portfolio theory. The author discussed the asset-liability management related to investing and chose the third party asset management as an innovative methods recommended to Chinese insurance companies.Chapter 4 discussed the way to control the cash flow risk. The cash flows into the company through premium income, invested capital and investment return, and the cash flows out of the company through claim, surrender, investing etc. To have a good management of the cash flow, wemust do some cash budget and analysis. The author referred the American life insurance's comprehensive risk management to avoid excessive cash out flow and thought it as a good way to solve the problem in China.Chapter 5 discussed the brand new method —finance reins...