The Study On Solvency Capital Requirement Of P&C Insurance Company In China

International solvency regulatory reform and China’s "second generation framework for solvency regulatory system" propose that solvency capital requirement should be calculated based on the risks faced by insurance companies. As we all know, the solvency capital requirement impose a direct impact on capital efficiency and business practice.In this context, it’s meaningful to do some research on the solvency capital amounts. Underwriting risk which served as the main risk module of the non-life insurance will be measured as a starting point, then analysis on the status quo of China’s non-life insurance industry is done to explore its constraints and make some recommendations.This article is divided into six chapters, main contents and conclusions are as follows:Chapter Ⅰ, introduction. We introduce the background and significance, existing study of the solvency regulation of insurance companies; present the ideas, methods and initiative of the article and also the pitfall.Chapter Ⅱ, mathematical theory on solvency capital. This section includes bankruptcy theory, square root method and copula function method. It allows us to find the method for measurement of underwriting risks in chapter IV, and facilitate us to apply empirical analysis and normative analysis.Chapter Ⅲ, insurer solvency regulation practice. EU solvency program and US regulatory system are introduced. The existing system of solvency regulation of China is reviewed; the plan of second generation of solvency regulatory system in China is discussed in detail. The Introduces of the regulatory principles is necessary, because risk quantification is only one component of the regulation system, only combined with industry practice the capital requirement we are talking about is feasible. While seeking balance between risk prevention and capital value is the ultimate goal, so regulatory principles and goal will guarantee capital requirements be made in the right direction.Chapter IV, empirical study on underwriting risk capital of non-life insurance company in China. This chapter includes fitting payment risk and expense analysis, on this basis, we get the solvency capital of underwriting risk module. Parameter of marginal distribution function and copula function are estimated.Then comparison between square root method and copula function are made.We found that if we adopt the one-year risk horizon and99%VAR, the capital requirements will be less than30%of premium revenue, which is not much different to the capital and reserve requirements regulated by the "Insurance Law".Finally, research on capital bearing capacity of non-life insurance company are made, we found that the solvency capital requirement around20%is reasonable, while there is a negative correlation between risk and premium scale,"one fits all" capital requirement standard is not feasible.Chapter V, conclusions and recommendations. This chapter summarizes the main points of the article, suggesting that regulatory capital requirement should be different according to company’s risk level. We hold that capital requirements standard will less than30%, and China’s regulatory system should strengthen qualitative supervision to seek balance of risk prevention and enterprise value. Difference between "Insurance Law" and "Solvency Regulations" on the minimum requirements is studied, the former capital is about1.5times larger than the latter. In the dissertation we propose that the regulatory capital requirements in laws and regulations should be clarified and consistent.The initiative of this study are listed belowFirst of all, applicability of square root method and copula function are compared for the purpose of regulatory.Secondly, this paper distinguishes objective payment risk and subjective expense risk, and then loss ratio and expense ratio are aggregated to reflect the underwriting risk, which overcome the shortfall that the direct use of the combined ratio cannot distinguish the difference between the two risks.Thirdly, the capital bearing capacity is studied which is essential to make a feasible capital requirement standard. Finally, we discussed the difference of minimum capital requirements between "Insurance Law" and "Insurance Company Solvency Regulations".