China's Insurance Asset Allocation And Optimization Decision-making Process

After10-year fast growth, China’s insurance industry has grown from an infant to a juvenile. At the end of2002, the whole industry’s asset was only RMB639.2billion, while, the number has become RMB5,000billion at the end of2010according the statement of CIRC. During9-year time, China’s insurance asset has grown9times. With fast growth of insurance assets, asset allocation has become more and more important.To be simple, asset allocation is to adjust the weightings of different assets in the portfolio according their performances, trying to find an optimized portfolio.(Normally, the optimized status refers to minimal risk with maximum return or maximum return with minimal risk). For insurance funds, asset allocation is to build an optimized portfolio under certain liability constrains, and adjust it according to the change of capital markets, trying to get a better investment returns or returns that are better than benchmark.Asset allocation can be categorized into different types according to their functions during the investment decisive steps. For China’s insurance asset management, asset allocation is commonly categorized into three types:strategic asset allocation, tactical asset allocation and dynamic asset allocation. The paper was written on the basis of above three asset allocation categories.First of all, the paper starts from China’s insurance asset allocation status, and then introduces three listed insurance company’s asset allocation structure and features. Secondly, it builds the investment-return-probability model, together with mean-variance model to provide an optimized portfolio in terms of strategic asset allocation. Thirdly, it introduces the economical cycle theories, and provides empirical study evidence of its validity in China, and then gives out an optimized tactical asset allocation suggestion. Fourthly, it introduces several different types of dynamic asset allocation practices, compares the performances of C-M, CPPI, Dynamic CPPI, and then provides optimized suggestion. Finally, the paper gives out suggestions for building optimized portfolio during investment decisive processes of strategic asset allocation, tactical asset allocation and dynamic asset allocation.