An Empirical Analysis Based On Dynamic Financial Analysis On The Profitability Of China’s General Insurance Industry

On October20,1949, the establishment of the People’s Insurance Company of China marked the beginning of the new China’s general insurance industry. But the company suspended the domestic business in1958and recovered the business in1979. Since the open and reform, there is a great development in the general insurance industry in China. Especially in the last nine years, the premium of China’s general insurance industry has increased by4.04times. The amount of the property insurance company has also increased to55by2010. Almost all the kinds of the property insurance have made a rapid development, especially the motor vehicle insurance. But when we study the net margin of China’s general insurance industry in the last9years, we can find that there is a great difference. The most annual net profit is22.59billion yuan, but the least annual net profit is just-8.49billion yuan. The standard deviation of the annual growth rate net profit is to the point of634.59%. So the profitability of China’s general insurance industry is not very coordinate with the great development of the general insurance industry. Furthermore the profitability is very important not only to the investors, but also to the company to satisfy the solvency requirement. It is also necessary to promote the general insurance industry health and sustainable development. So I choice the topic on the profitability of China’s general insurance industry.This paper is divided into five chapters. The first chapter is the introduction, which is mainly introduces the research background, the significance, the objective, the research methods and the research content and literature review. The second chapter is the overview of the Dynamic Financial Analysis. First of all, the other defines the Dynamic Financial Analysis, which includes the DFA’s origin, the definition and the advantages. Secondly, this paper introduces the application of the dynamic financial analysis. Dynamic financial analysis is mainly applied in the Solvency regulation of insurance company, matching asset and liability, optimizing the reinsurance strategy and evaluating the expected business strategy, etc. Thirdly, this chapter introduces the classification of dynamic financial analysis. Dynamic financial analysis has two kinds of methods. One kind is scene analysis method; other kind is random simulation method. The last part introduces how to establish a dynamic financial analysis model to a insurance company. It includes the steps, the framework and the elements of the model. The third chapter analyses the profitability of China’s general insurance industry, using the empirical analysis. The contents mainly include establishing the DFA model about general insurance industry, selecting the data, selecting the study criteria, the results of the model and analyzing the results. The fourth chapter is the suggestions about how to improve the general insurance industry profitability. The fifth chapter is the summary of this paper, including the results, the suggestions, the limitations of the study and the prospect.The main conclusions are as follows:Firstly, if the development can maintain current state, The earning of the China’s general insurance industry will maintain the fast growth in the next five years. In addition, when we study the composition of the total net profit of the whole industry, we can find both underwriting profit and investment income will be greatly increased the risk will decreased. The conclusion demonstrates that the general insurance industry profitability has enhanced obviously. In my opinion, there are two reasons of the changes. The first one is the rapid growth of the premium income; the second one is the obviously decrease of the cost ratio and the loss ration. So if we want hold and enhance the general insurance industry profitability, we must further reduce the he cost ratio and the loss ration.Secondly, we can find if you want keep stay profitable in the long term, the company must think more of investment business. The study shows that although the underwriting profit is higher than the investment income at the present stage, the investment income will be higher than the underwriting profit in the next five or six years. While, we can find that the investment income has a huge upside potential.Thirdly, with the contributions of some influence factors’contribution rate to the net profit, the factors can be sorted by the contribution rate from big to small. The order is compensation amount monthly, the rate of return on equity investment, the enterprise bond yields, the rate of return on fund investment, reflecting the management change’s factors, financial bond yields and treasury yields. Combining the proportion of the different assets, we find the equity and fund are most important to the net profit in all kinds of assets. So the compensation amount monthly, the equity and fund play a crucial role to hold and enhance the net profit of China’s general insurance industry. If you intend to increase the investment return, enhancing the proportion of the equity and fund is necessary. But when we enhance the proportion, the risk of the investment business and the whole company will increase. So at the same time, the company should strengthen the risk management and the supervisor should also strengthen the solvency regulation.According to the study conclusions, the author some suggestions about how to improve the general insurance industry profitability.In the first place, the insurance company should take some measures. Firstly, improving the quality of underwriting and settlement of claims to control the loss ration; Secondly, strengthening the cost management to reduce and control the spending; Thirdly, training and introduced senior investment management person to research and development new risk management technology; Finally, constructing the internal control system to strengthen internal management.In the second place, the supervisor should also take some measures. It can encourage the insurance company to establish diversified portfolio and strengthen the solvency regulation to control the financial risk.