The Research On Risk Measurement And Economic Capital Allocation On Insurance Company’s Securities Investment

Insurance industry and banking, funds, securities are said to be the four pillars ofmodern financial system. With the development of social economy and theimprovement of living standards, the insurance industry is playing a more and moreimportant role in people life. Insurance business including insurance acceptance andinvestment. The source of Insurance companies’ capital investing is investors’insurance premiums and its own funds, and premiums were paid to the insured forclaims. Once the investment income encounter the risk of loss, it will directly effect ainsurance company’ claims, even led to the bankruptcy of the company, which will doharm to society and economy. Therefore, how to measure insurance companies’investment risk accurately and allocate reasonable economic capital accordingly hasbecome one of the major problems to insurance companies when invests.According to the reality that insurance company in our country can conductsecurities investment, this paper took stock, bond and fund as investing targets,choose the csi300index, the Shanghai national debts index, the Shanghai bonds indexand the Shanghai enterprise debts index to simulate insurance companies’ investmentin stocks, bonds and funds yield. Choose four indexes from2008to2012, a total of5years of day price change ratio data as a yield rates on investment. Use GARCHmodels to matches data, and choose the best model which fits the income distributionfunction of each index by comparing the related indicators. Considering a number ofjoint distribution of the portfolio returns don’t obey the multivariate normaldistribution, this paper choose copula connect function to describe four type of index,the correlation between GARCH model fitting of the income distribution function asmarginal distribution, the combine yield of joint distribution is obtained by Matlabprogramming, and through monte carlo simulation, linear programming is applied toestimate portfolio VaR and CVaR value. finally, the combination of different weightratio of assets to be economic capital allocation. The results show that if investsecurities singly, the largest allocation ratio is the csi300index,the national debtsindex and the enterprise debts index are small respectively; and for portfolioinvestment, asset combination of economic capital allocation ratio is less than the csi300index and the fund index,greater than the bond and enterprise debt index.Therefore, risk bias companies can slightly increase the proportion of stock and fund investment, risk aversion companies tend to invest in bonds. the insurance company’sinvestment risk measurement and economic capital allocation has good theoreticalguidance meaning and realistic meaning.