Research On Pricing Model Of Chinese Participating Insurance Products

Since its first appearance in2000, participating insurance has become one of thehottest products in today’s insurance market, for it has both security function andinvestment function. Because of these unique advantages, this kind of insurance isvery popular in Chinese market. By2011, the proportion of the participatinginsurance in Chinese major life insurance companies is more than50%, and evenmore than90%in several. The participating insurance premium income accountedfor the proportion of life insurance premium income has reached91.6%in the firsthalf of2011. The participating insurance has become a major life insurance businessof various insurance companies.When the actuaries are trying to price the insurance contracts in traditionalactuarial approach, they cannot determine the dividend equity value of theparticipating insurance, so they always avoid this issue. Usually, they assume that the interest rate is fixed and the mortality rates meet some specific life table. Then theyconsider the participating insurance meeting some other conservative assumptions toidentify an interest rate for pricing the insurance contract. However, with theimplementation of international accounting standards in China, the ChineseInsurance Regulatory Commission require the insurance companies to submit thefair market value of the liabilities of insurance companies, in order to achieve therequirements of the International Accounting Standards, which would be a challengeof pricing participating insurance. What’s more, the pricing model established by theWestern actuaries cannot fully reflect the characteristics of Chinese insurance market.Therefore, we need to use the cash dividends mode to establish a model identified bythe fair value of participating insurance products, which can meet the requirementsof the new accounting standards, and describe the characteristics of Chineseinsurance market portfolio as well as the preferences of consumers in China. So thatthe insurance company can establish a scientific pricing method, can effectivelycircumvent the pricing risk and can keep the company operating in good condition.This will be great significance to promote the healthy development of China’s insurance market.First of all, this paper expounds the basic theory of pricing the participatinginsurance. Then we establish the participating insurance contract pricing model in themartingale option pricing method, combining with our insurance company portfolioselection. In this paper, we assume that the main forms of investment of insurancefunds are bank deposits, securities market and bond market. Finally, combination ofChina’s actual insurance market, the bond market and the stock market, we simulatethe participating insurance policy and data analysis by using the pricing modelestablished in this paper and the Matlab numerical computing platform, which wouldprovide a theoretical reference for the research of our participating insurance pricing.