The Risk Analysis In Chinese Life Insurance Companies Based On SEM

Global financial crisis initiated by subprime mortgage crisis in2008and the lasting current European sovereign debt crisis cause governments and scholars in different countries concern on risk supervision in the finance industry. In recent years, finance industry has actively carried out enterprise risk management and accumulated practical experience. As one component of the finance industry, insurance industry plays a significant role in controlling risk of insurance companies by implementing and popularizing ERM.Firstly, this paper reviews the theory of ERM and ERM in the insurance industry, including the origin of ERM, the basic definition, the current applications and the challenges of implementing ERM. Meanwhile, this paper introduces the history of ERM in the insurance companies and its international experience and discusses the suggestions on ERM in our insurance industry.Secondly, this paper categorizes risks of insurance companies based on the theory of ERM. In details, this paper summarizes the current risk-categorized methods in Chinese insurance companies and provides the risk categorization of Chinese insurance companies based on ERM. The corporate internal risks are devided into seven types:insurance risk, market risk, liquidity risk, strategic risk, reputational risk, operational risk and credit risk.Finally, this paper applies structural equation modeling to an empirical analysis of several main types of corporate internal risks in our life insurance companies, in order to measure the risks and interrelationships among risks. The empirical analysis indicates that the insurance risk in Chinese life insurance companies mainly originates from underwriting risk, provision risk and solvency risk:the credit risk mainly stems from financial market and insurance business; the market risk mainly originates in interest rate risk and investment risk in financial market:the liquidity risk mainly stems from the asset-solidified degree and repurchase business risk. Furthermore, the linear relationship among insurance risk, market risk and liquidity risk is significant.According to the above-mentioned results, Chinese life insurance companies should implement ERM at a corporate level, identify a full range of potential risks, scrutinize risk sources from business unit and pertinently monitor risks. Moreover. Chinese life insurance companies should take advantage of the risk portfolio techniques and the interrelationships among risks, to guard against risks and seize the opportunity better.