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Application Research of Stress-testing on China’s Life Insurance Industry

Author LiuYanFang
Tutor LanXinMei
School Beijing Technology and Business University
Course Finance
Keywords Stress-testing life insurance solvency Logit model
CLC
Type Master's thesis
Year 2012
Downloads 9
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China’s insurance industry has got rapid development since the restoration,premium scale continues to expand, insurance depth and density also gets risingceaselessly. But behind the rapid development of the insurance industry, the solvencyproblem is shown increasingly. According to statistics, as of the end of2010,6insurancecompanies solvency adequacy ratio are less than100%, which includes theNewChinaLife insurance company and the Jiahe life insurance company, solvencyadequacy ratio were34.99%and71.26%. In addition,7insurance companies are close tothe solvency regulation line. At the same time, the international, domestic economyenvironment change unpredictably, complex degree is deepened ceaselessly, economicgrowth, interest rates, inflation, exchange rate, asset prices and macroeconomic factorschanges are sufficient to cause the solvency status of deficient. By2007, the UnitedStates sub-loan crisis triggered by the global financial crisis makes people begin to facethe risk of financial institutions and regulatory focus attention. Thanks to the50years didnot meet international financial crisis, the financial institutions, regulatory agencies andfinancial industry really made stress-testing on the agenda.In this paper, based on the international experience, combined with China’s nationalconditions, in view of the macro factors, selection of gross domestic product, theconsumer price index (CPI), financial institutions RMB deposits one-year benchmarkinterest rate (R), the Shanghai Composite Index closing price (SI) five index, based onthe Logit conversion of macro stress test model, quantitative evaluation of macroeconomic factors fluctuations on China’s life insurance industry system stability, and theregression model on the basis of analysis results, the effect of significant macroscopicalindex for sensitivity analysis and the combination of scenario analysis. The results showthat: GDP, interest rate and stock price play a greater impact on life insurance industry,under extreme adverse circumstances, namely when the RGDP is3%, the level of interestrates to7%, the Shanghai Composite Index for1500, net assets ratio dropped to9.38%,and the ratio of net assets average level photograph is compared, fell to46.7%, solvencylevel glides badly. Finally, according to the research results, this paper puts forwardcorresponding policy suggestions.

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