The Analysis Of Optimization Strategy Of Asset Allocation In Insurance Industry Based On Black-Litterman Model

China’s insurance industry has made great achievements in the development of China’s financial industry since its resumption more than 20 years ago.The status of the insurance industry is also on the rise.As a stabilizer of society,as well as one of the largest institutional investors in the capital market,it not only provides liquidity and stability for the capital market,also provide individuals and enterprises with life,property and other aspects of risk protection.With the deepening of China’s insurance reform,insurance regulatory policies are improving,and the coverage of relevant regulations is getting broader.After the implementation of the China Risk-Oriented Solvency System(C-ROSS)in 2016,the C-ROSS Phase Ⅱ in 2021 was implemented by the end of 2021,with continuous risk-oriented regulation and more emphasis on refined regulation.These measures provide a strong guarantee for the healthy development of the insurance industry.With the growth of economy,the further optimization of policy environment and the continuous development,the insurance industry has made much progress.The status of underwriting business in the overall income,profit and cash flow of insurance companies is gradually declining,and investment income gradually narrows the distance from underwriting income,becoming the second largest main source of operating income of insurance companies.In terms of asset allocation,fixed assets investment is still the main use of insurance funds in China,with equity investment as a supplement.However,with the decline of premium income and investment income,as well as the increasing cost of liabilities,the original portfolio strategy of insurance funds may not be able to hedge risks effectively.Therefore,the asset allocation of insurance funds is particularly important.This paper summarizes the current situation of the use of insurance funds and the regulatory regulations on it,and then constructs an asset allocation optimization model.The optimal portfolio can improve portfolio returns and better control risks and costs at the same time.The Black-Litterman model is constructed considering the new regulations on capital management and the C-ROSS Phase Ⅱ.Based on the weights of various assets obtained from the actual asset allocation structure of insurance funds,the Vector autoregressive Model is used to quantify the return vector of investors’ views.The correlation coefficient between the predicted value and the actual value is used to set the confidence level and construct the viewpoint error matrix.Seven types of assets,including bank demand deposits,national bonds,financial bonds,corporate bonds,funds,stocks and real estate,are selected for asset allocation,and sensitivity analysis is carried out on the risk aversion coefficient and investors’ subjective views in the model.In addition,the empirical analysis of the model from the dynamic perspective is carried out.The traditional mean-variance model and risk-parity asset allocation model are compared with the improved Black-Litterman model,and the characteristics and differences of the three asset allocation models are studied and analyzed,including return,volatility,credit risk,market risk,liquidity cost and other indicators.The research results of this paper show that under the regulatory constraints of the the implementation of the China Risk-Oriented Solvency System(C-ROSS)Phase Ⅱ and the new regulation on capital management,the improved Black-Litterman model can obtain higher returns and control risks to a certain extent.The mean-variance allocation model based on Markowitz’s mean-variance theory has a higher sharpe ratio,but its expected return rate is lower,and the prediction error is ignored,and the asset allocation is less diversified.In addition,the mean-variance model is sensitive to parameter changes,and the fluctuation range of volatility and Sharpe ratio is large when the required return rate of investment changes.Meanwhile,the asset allocation of mean-variance model allocates most assets to national bonds and financial bonds,while the allocation ratio of enterprise bonds and real estate is 0%,which lacks diversity.The asset allocation portfolio of risk parity model has strong risk aversion,but its profitability is low,and it cannot bring enough return on investment for insurance funds.The improved Black-Litterman model combines the historical rate of return with the subjective point of view,takes into account the characteristics of the time series of financial assets,uses the Vector Autoregressive model which adds the variables of macroeconomic data to forecast the rate of return,and comprehensively considers the market risk of insurance funds,the requirements of credit risk and the requirements of liquidity cost.It more truly reflects the actual investment environment of insurance companies,and ensures the robustness,safety and liquidity of insurance funds to a certain extent while improving the returns of investment portfolios.However,the disadvantage is that the Sharpe ratio is low.In addition,from the comparison between the theoretical investment proportion of insurance funds and the actual investment proportion,the theoretical optimal investment proportion of liquid assets and creditor’s assets is lower than the actual investment proportion of current insurance funds,while the theoretical optimal investment proportion of equity assets and real estate is higher than the actual investment proportion of current insurance funds.This paper suggests that insurance companies pay more attention to the optimization of insurance asset allocation structure,and adjust the asset allocation structure of insurance funds in time according to the regulatory policies on the use of insurance funds and the changes in the economic trend.At the same time,we should pay more attention to expanding investment channels,developing a variety of investment products,and drawing on international experience to increase investment in collective investment plans and other financial assets.In addition,regulators and insurance companies should pay close attention to liquid assets and various risk control,ensure the liquidity of funds while maintaining the overall risk of the portfolio in a reasonable range,and maintain the stability and safety of insurance capital.