The Estimation And Application About The Risk Margin Of Insurance Liability Based On Fair Value

International accounting standards board is trying to make the international financial report standard4about insurance contract. Its aim is to adopt the fair value principle to illustrate the accounting forms of insurance company. The implement of this new accounting rules are useful for insurance company to have their asset and liability sheets clearly compared and easily understood so that the relevant manager could make decisions right. August2008the financial department of china and insurance supervisory board of china promulgate enterprise accounting rules of interpretation2and the information of relevant items about insurance industry implementing’enterprise accounting rules of interpretation2one after another, demanding the listed insurance company both from inside and outside adopting new reserve estimate criterion under the best estimation principle, which makes our country catch up with international trend and reflect the direction of the reformation of international accounting rules.In this paper, the exit price of the risks in the market trade is the basis for the fair value estimation of insurance liability. The insurance liability is consist of the best estimation value and risk margin. This paper first introduces the foundation theory of the fair value and deeply analysis the rationality and feasibility of the fair value estimating insurance liability, under this basis, risk margin is coming as the key substitution of the fair value of insurance liability. Secondly, through comparing different methods of estimating risk margin, this paper considers that the method of cost of capital is suitable. After making some assumptions about the loss distribution of the unpaid losses and the paid pattern, this paper establishes the model for estimating the risk margin through recursive method. Next this paper illustrates the use of cost of capital method in order to make the model more clearly understood. Lastly some suggestions are put forward directing at the application of fair value principle estimating insurance liability in china, hoping that insurance industry in china will have a quick and good development.