An Empirical Study On The Relationship Between Risks And Capitals For Insurances In China

Since the domestic insurance industry has resumed operations in 1980,the domestic insurance industry is in a state of rapid development.The average annual growth rate of premiums is as high as 30%,and it has become an important industry of China's economy.It has played an important role in safeguarding people's life and maintaining social stability.However,as the cost of high-speed development of insurance companies,they faced with greater risk in the rapid expansion of premiums at the same time.With the premium growth has brought a huge insurance risk,insurance companies' requirements that improving investment income and widening investment channels has improved investment risk rapidly.In addition,with the complexity of the market environment,market risk,liquidity risk,operational risk,reputation risk and strategic risk increase.The increase of the risk level of the insurance company will bring the crisis to the insurance industry,even to the community adversely affected.Faced with increased risk and complexity of risk,the level of risk management and the ability of solvency supervisors need to be improved.The technology of insurance company risk management is more and more comprehensive.From local management to COSO-ERM risk management framework application,from passive supervision to more active and accurate risk prevention,and the CIRC's supervision of insurance companies also rise to a new height because of upgraded solvency supervision system.The internal risk management and solvency regulation system is related to the risk assessment and capital matching.The theoretical basis lies in the close relationship between risk and capital:capital determines the ability to absorb risk,the risk determines the size of the matching capital.The degree of contact determines the effectiveness of risk management.Therefore,by studying the relationship between risk and capital ratio,the paper study the effective means to control the risk of insurance companies,including theoretical research and empirical test.This paper first reviews and summarizes the relevant literatures at home and abroad,expounds the related concepts of insurance company risk,capital level and so on and analyzes the relevant factors and important theories that affect the risk and capital level of insurance companies.On the basis of this,this paper establishes the research hypothesis of the relationship between the capital level and the risk level of the insurance company.In order to verify the interaction between the two sides,this article has carried on the empirical test.This article adopts 30 Chinese life insurance companies and 13 property insurance companies.In order to obtain rich empirical results,the empirical method uses two-stage least squares(2SLS)and two-stage quantile regression(2SQR)and we compare the relationship between the capital ratio of our insurance company,the risk of underwriting and the risk of investment.It is found that the impact of the risk level of the insurance company on the capital ratio is very small.Under the 2SLS method,the investment risk of the insurance company has a negative impact on the capital ratio and the insurance risk has a positive effect on the capital ratio.It is consistent with the results of Hu(2014)on Taiwan insurers,but this effect is very small.In the 2SQR method,the capital ratio is not significantly affected by the risk in the low quantile.However,the coverage risk is significant under the high quantile.There is a significant negative correlation between the investment risk and the underwriting risk of China's insurance companies.The capital ratio of China's insurance companies has a significant impact on the risk level.The results of the 2SLS method show that the capital ratio has a significant negative impact on the underwriting risk and investment risk.The increase in the proportion of capital of insurance companies can reduce the level of risk,indicating that the improvement of capital structure can effectively prevent risks.After a study of all insurance companies,this paper continues to conduct a comparative study of life insurers and property insurance companies.Further studies have found that life insurance companies and property insurance companies are very different in terms of capital ratio and risk.Under the 2SLS method,The insured risk of the two is different from the change of the capital ratio,the insurance company's underwriting risk is significantly negatively correlated with the capital ratio,life insurance company's underwriting risk and capital ratio is not significant.In the 2SQR method,the investment risk and the capital ratio of the two are different in the high quantile,the life insurance company is not significant under the high capital ratio,and the property insurance company has a significant negative correlation;Secondly,the sensitivity of investment risk to capital is different,life insurance companies in the low capital ratio is more sensitive,on the contrary,the property insurance companies are more sensitive to higher capital ratios;Finally,the impact of capital ratio on underwriting risk is different,life insurance companies are significant in the median quantile,they are not significant in the high score,however,the property insurance companies are significant at high and low,but not significant in the median quantile.Based on the above theoretical research and empirical research results and we combined with the status quo of China's insurance companies and the characteristics of insurance solvency regulation,this paper puts forward the relevant recommendations.