Empirical Study On Factors Of Chinese Property Insurance Company's Solvency

Insurance in China has been keeping quick development for about twenty years. Until now, there are 10 insurance groups,64 property insurance companies and 79 life insurance companies. These help our national economy developing faster and more stably.Property insurance is to ensure the risk of property and related interests. It concentrates lots of risk and fund, by providing risk guarantee to policy holders and charging premium from them. When insurance accident happens, insurer should give the policy holder some compensation. So premium means a kind of liabilities to insurers. And they should make sure their ability of paying the compensation all the time, which depends on uncertain accidents in the future. So it's always difficult for them to keep solvency. According to CIRC,4 insurance companies'solvency ratioes are still below the legal requirement, and other 6 ones'are in danger.The solvency of property insurance company is influenced by many factors, like capital, asset, management, economic development and so on. But how can they influent solvency? Which one is the most important? Nobody can answer clearly. Based on these questions, this paper does some study on theory and demonstration. This paper includes five parts.The first part is an introduction of this paper, including research background and significance, relevant literature review and organization of the paper.The second part is theoretical analysis in insurance solvency. Firstly, it defines solvency by conception, measurement and economic performance. Then it talks about our country's supervision to solvency. At last, it divides property insurance companies into three types, which are Chinese capital, foreign capital and professional property insurance company, and use financial data to analyse their solvency status one by one.The third part talks about factors influencing solvency in theory. Internal factors include capital strength, asset, pricing and management, while external factors include economy, insurance market and natural environment. What's more, asset factor is separated into gross, structure, and matching with liability and management factor is separated into underwriting, claiming, reinsurance and cost.The forth part is empirical analysis. Firstly, this paper uses panel data of all property insurance companies from 1998 to 2010, and chooses one dependent variable and eight independent variables depending on theoretical analysis above. Then it builds fixed effect model, after Hausman Test. The result shows that: capital strength, return on total asset, current ratio and comprehensive expense ratio has significant effect on solvency. At last, this paper analyses regression results of all factors one by one, combining Chinese insurance industry status. Secondly, it uses Panel Cointegration and Error Correction Model to ananlyse capital strength's influence to solvency. At last, this paper shows that insurance company should not depend on increasing capital fund, but pay more attention to strengthen own management.The fifth part is some suggestions about how to improve solvency. For example, increase financing capacity, optimize assets structure, advancing underwriting quality, learning from foreign company, and so on.This paper makes innovations as follows. Firstly, it talks about interior factors influencing solvency in use of company data and panel model. Secondly, it uses Panel Cointegration and Error Correction Model to ananlyse capital strength's influence to solvency deeply. Thirdly, the results do not depend on few companies, but on all property insurance companies.