| The capital exercise is inevitable to the development of China's life insurance industry. In recent years, the link between life insurance and capital market is becoming closer. Particularly, in December 2003,China Life Insurance Company Ltd was listed both on America and HK capital market, which is the largest IPO and the shares are sold well. Consequently, the life insurance must concentrate on how to manage and promote the shareholder' value and improve the relativity of its accounting information, which has been the focus points of the academic field, life insurance company managers, and regulation authorities.In the author's opinion, the shares in life insurance valuation can be categorized as actuary-based and accounting-based valuation. The actuary-based valuation refers to the method which uses actuarial knowledge and is completed by professional actuary. Comparatively, the actuary-based valuation is more accurate, but in practice, its usage is limited. Firstly, in China, actuary education is poor and very professional, thus, to most investor and managers, it is difficult to understand. Secondly, it is difficult to obtain the necessary data of valuation. The purpose of the thesis is to find an easy, practical, understandable method, even less accurate than the actuary-based method. So, those who are interested in the valuation can make independent judgment.Accounting-based valuation may be a good choice. It depends on the public data provided by life insurance companies, especially profit, residual income, net asset, cash flow, combined with some easy models to valuate the shares. Accounting-based method is easy to handle and understand and the necessary data is easy to get. Some frequently used valuation methods in capital market, such as P/E ratio, are all accounting-based methods. But if the particular characteristics of life insurance operating and its accounting information are not considered, those methods are not useful in valuation. The dissertation is trying to modify those methods according to the characteristics of life insurers and set up the accounting-based valuation tailored to the life insurance company.The main content and the structure of the thesis are as follows:Chapter One is an introduction to the background, significance, methodology. Even though the background and significance have been mentioned in the preface of the dissertation, some details are still discussed in this chapter. Chapter Two discusses some basic notions about the value.For the purpose of valuation, from different points, book value, market value, intrinsic value, and liquidation value are analyzed and compared. At the same time, Chapter Two sums up the accounting-based valuation and classifies it into three categories: cost method, market method and future income method. Chapter Three discusses the shortcomings of accounting information concerning to valuation and how to adjust it. Accounting information is the basis of valuation, so the first and most important step in valuation is to understand the accounting information. Attributable to the flexibility of accounting policy, intrinsic contradiction and especially the special characteristics of life insurance and "unique accounting" in life insurance industry, so some adjustments are needed when valuation. Chapter Three introduces some methods such as SSM, EPM, APM, EV which are widely used in overseas markets. Besides this, the future option value in the life insurer mentioned by famous professor Paul J M Klumpes is also discussed. Chapter Four focuses on the market method. In fact, because of the "new business strain", the P/E ratio is not suitable to the valuation of life insurers. The thesis makes some adjustments to the P/E ratio model and the book value model to improve the accuracy. Another creativity is the introduction of F-O model. Chapter Five analyzes the use of future income method in the valuation. Firstly, on the basis of other research and the characteristics of life insurer, which i... |
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