Dissertation > Economic > Fiscal, monetary > Insurance > China's insurance industry

Research on China’s Insurance Pro-cyclicality

Author GengYunJie
Tutor XueMei
School Beijing Technology and Business University
Course Finance
Keywords pro-cyclicality counter-cyclical regulation economic cycle
CLC F842
Type Master's thesis
Year 2012
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The global economic crisis happened in2007-2008brought severe losses to thefinancial industry. Studies have shown that the financial system’s pro-cyclicality is themost important reason for the financial imbalance, financial fragility strengthened andeventually leading to the global financial crisis. American insurance industry has beenhitted severely during the economic crisis. American data have shown that the rise andfall of the insurance industry consist with the macroeconomic volatility. Whether theconsistency existing for a long period and whether the insurance system’s pro-cyclicalitycauses the consistency are worth to study.It’s important for the insurance industry to getrid of the impact of the economic cycle shocks, and to maintain the stable operation.This paper is based on the thinking of the above, exploring the China’s insurancepro-cyclicality by finding the mechanisms and root of the pro-cyclicality, as well as theempirical research based on the China’s insurance and economic data. The researchmethods involve the combining theory and practice method, theory qualitative analysismethod, system analysis method and statistical measurement method. The empiricalresearch confirmed that pro-cyclicality is existed in China’s insurance industry. And thepro-cyclicality is caused by the underwriting’s pro-cyclicality, investment business’spro-cyclicality, pro-cyclicality of the insurance enterprise’s financial management andpro-cyclicality of the solvency supervision. The resulting risks include underwriting risk,investment risk, reserves insufficiency risk, solvency insufficiency risk, difficult recoveryfrom the recession, and the short-sighted risk. The paper attempts to find risk preventionrecommendations from various angles, to provide a reference for the insurance companyto determine the reasonable institutional arrangements, for the insurance associations’sresearch, for the insurance regulators to set down counter-cyclical regulation measures aswell as for the policy support set by the relevant government sector. Aim to eliminatingor reducing China insurance industry’s pro-cyclicality, and promoting positive interactionbetween insurance system and macroeconomic.It has great practical significance formaintaining the stability of China’s insurance industry.

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