Empirical Study Of Influence On Insurance Portfolio Of Investment Of Insurance Funds In Local Government Debt

Investment of insurance funds in China began in the mid-1980s, but in the1980s, the insurance company’s funds are basically formed into bank deposits withoutother forms of capital operation, although in the90s involved in the real estate,securities, trust, and even bonds, because of the Chinese investment environment andcapital markets are at the initial development stage and capital market development isimmature, performance of the investment of insurance funds is poor. Insurance,however, the financial industry, as one of the troika, although with a big pool, how toeffectively use of insurance funds is with the matter of the insurance industry’ssustainable development. The effective using of insurance funds may make up thelosses of the insured, reduce the price of insurance products and improve thecompetitiveness of the insurance industry, expand its market share, can improve theinsurance company solvency so as to promote the steady development of theinsurance. The increase of premium income in recent years in our country, and theincreasing use of insurance funds balance embodying the development momentum inthe insurance industry, provides sufficient funds to support to broaden the investmentchannels and increase investment income.In September2010, the China Insurance Regulatory Commission (CIRC) issued"interim measures for the insurance fund investing in real estate", to allow insurancefunds investing in infrastructure real estate and real estate related financial products.From the point of insurance funds balance, according to incomplete statistics, untilJuly2011, the number of the product established by insurance companies up to21, theamount of products, mainly concentrated in energy, transportation, municipal andother infrastructure industry, reached to110billion Yuan.With the release of China’s local government debt and expanding the investmentchannel of insurance funds, insurance funds investing in local government bonds,investing in the infrastructure construction meets the requirement of insurancecompany assets and liabilities management, and also conforms to the social attributeof insurance funds. So far, the portfolio risk research is limited to the investment ofinsurance funds in bank deposits, government bonds, corporate bonds, equity funds,investing to local government debt which has just opened on both theoretical andempirical is still in the initial stage, especially about the empirical study of insurancefund investment to local government debt is blank at home, so in this paper we selected Empirical Study of Influence on Insurance Portfolio of Investment ofInsurance Funds in Local Government Debt, to make up for and promote the researchof the investment on insurance funds in China to local government debt..The introduction of insurance funds to invest to local government debt helps toalleviate the pressure of the local government investment competition. Localgovernment debt which refers to the central government debt is a way of credit toraise fund that local government use to perform its functions with its credibility. Localgovernments must have enough ability to mobilize enough resources, break throughthe existing financing model, raise funds through various channels to solve thecontradiction of the increasingly demand fund of prominent infrastructuredevelopment. Insurance funds invest to local government bonds, is advantageous tothe optimize allocation of insurance assets, improve investment returns. Now localgovernment debt issued in China contains three-year, five-year and seven-year. On theone hand, the life insurance companies’ debt is long-term, which complies withlong-term local government bonds and infrastructure projects, on the other hand, thelocal debt associated with local government infrastructure, complies with therequirement of insurance capital appreciation value.The research content of this article is mainly by investigating the risk of thecurrent insurance funds investing to local government debt, combined with theempirical study of insurance fund investing to local government debt, find the causeof the risk and figure out some effective measures to control it. Based on the researchso far in our country present situation of the investment of insurance funds, combiningpolicy on the basis of the domestic investment of insurance funds, we try to find thecommon ground of insurance funds and local government debt and provide theoreticalbasis for insurance funds investing to local government bonds. In view of the portfolioof insurance funds, we select common channels of insurance funds investment,including bank deposits, government bonds, corporate bonds, stocks, securitiesinvestment fund, on the basis of the join of local government debt which we need toanalyze, the six elements in insurance portfolio, using VAR model analysis system ofrisk investment and the overall risk of portfolio. In the Markowitz portfolio model, weselect VAR value of the asset instead of variance to measure the risk of asset and setthe limit condition of VAR value for a specific value to transform the old model ofdouble objective linear programming problem into a single objective linearprogramming problem, simplify the calculation process, we calculate the optimal insurance portfolio through the MATLAB toolbox. In computing, we comparativeanalysis which join the local government debt and do not join the local governmentdebt portfolio, which limit investment ratio of insurance investment and don’t set alimit of investment ratio, and we can come to conclusion that the addition of localgovernment debt to insurance portfolio have beneficial effects, it can improve theinsurance investment portfolio, reduces investment risk, increase income. At the sametime set a limit of the proportion of local government debt is good for portfolio riskcontrol, we draw on local government debt investment proportion, insuranceregulators should be restricted, to prevent ignoring risk insurance company for thepursuit of high returns.