Risk Analysis of Insurance companies Fund application in China

International Journal of Innovative Research in Information Security (IJIRIS) ISSN: 2349-7017(O) Issue 8, Volume 2 (August 2015) ISSN: 2349-7009(P) www.ijiris.com

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Risk Analysis of Insurance companies Fund application in China Fei Ma

Department of Economic and Management, Heze University, Heze China

Abstract: Now the important characteristic of the insurance industry is the development of insurance business and the use of insurance funds balanced development. Insurance company has become a financial enterprise with the dual function of economic compensation and financing. The use of insurance funds is an important pillar for the survival and development of modern insurance. This paper first introduces the basic situation of the insurance company; secondly, the risk of insurance companies in the use of capital, and finally the risk of insurance companies to use the possible risk of management and preventive measures. Key words: Insurance fund; risk management; investment income Introduction With the development of economic integration and financial liberalization, the financial service function of insurance industry is becoming increasingly prominent. Insurance companies have long-term, stable and scale characteristics, so the insurance company's capital utilization plays an important role in the management of the company.

Ⅰ. DEFINITION OF RELEVANT CONCEPTS OF INSURANCE COMPANY A. Insurance and insurance companies Insurance is the insurance premium paid by the insured in accordance with the contract, the insurer shall be liable for the loss of property in accordance with the contract, or in case of death, disability, illness or the age of the contract. Insurance company is a company established in accordance with the law of insurance business, it is through the insurance premium to the insurance fund to establish insurance funds to provide insurance to the community and to obtain the corresponding profit. Insurance company's business activities mainly include two parts, underwriting business and investment business, the two part of the business activities exist in many aspects of the difference. In our country, because of the development of the insurance company is not long, the state has made more stringent restrictions on the use of insurance funds, the insurance company's business activities to underwriting business. B. Insurance fund application 1.The concept of the use of insurance funds The use of insurance funds is an insurance company for its own funds and foreign funds (mainly responsible for reserve) idle part of the reorganization of assets to seek profit or to engage in a cause of financing behavior. Insurance investment is a kind of capital used by insurance companies in order to increase the debt or financial assets of the company. 2.Structure of insurance funds Insurance funds from the insurance company's own capital and insurance liability capital of two parts, the insurance company's own capital, including registered capital and provident fund. Capital generally by the company law and the insurance law, in the opening can be considered as the initial reserve, in the operation of insurance companies is also one of the signs of solvency or underwriting capacity. Provident fund is the insurance company each year from after tax profit, it and the registered capital or the capital of the real collection of the insurance company's solvency or underwriting capacity, under normal circumstances, the vast majority of idle state, can be used for long-term investment. Insurance liability is extracted from the premium, the capital of the insurance company in accordance with the provisions of the provisions of the payment of compensation for the future payment of compensation or payment of insurance funds.



3.The principle of insurance fund application (1)Legitimacy Investment in accordance with the law to obtain legal protection, so the insurance investment must comply with the relevant laws and regulations of the state on the use of funds. (2)Security Insurance fund is the liability of the insurer to the insured, and ultimately to be used to pay, so the use of insurance funds must comply with the principle of security. Any investment has risks, to achieve the principle of security, can be implemented to avoid policies and decentralized policies to reduce investment risk. (3)Earnings Income refers to the use of insurance funds to obtain investment income as the main condition. One of the purposes of insurance funds is to improve their economic benefits, so that the investment income has become an important source of profit for the insurance company, in order to enhance the solvency and expand the business scale, the use of insurance funds to improve insurance management and enhance the company's competitive position has important significance. (4)Symmetry The principle of symmetry refers to the symmetry of the insurance company in the business operations to maintain the source of funds and the use of the use of insurance funds to maintain the investment assets in terms of time, return, risk and the corresponding source of funding. (5)Balance Insurance companies in the source of funds and the use of the general requirements to achieve a balanced and hand to avoid the accumulation of a lot of money is not in operation and less operation and bear the high opportunity cost; on the other hand, to prevent in lack of funding for speculative fictitious transaction, so as not to bore high risk, as far as possible to achieve the sources of capital scale and capital scale is used broadly balanced. (6)Social welfare The objective effect of the use of insurance funds must be conducive to the development of the society, not against the social and public interests, and give full play to the social benefits. As far as our country is concerned, most insurance companies are state-owned or state-owned holding enterprises, therefore, the use of insurance funds more emphasis on social principles. 4.Mode of operation of insurance funds From the practice of domestic and foreign insurance companies, the use of insurance funds are mainly: deposits, bonds, stocks, securities investment funds, real estate and mortgage loans, etc., these are the use of safety, liquidity, profitability, the characteristics of insurance companies should be based on their own characteristics, reasonable choice of the use of scientific investment portfolio.

Ⅱ. THE RISK FACED BY THE USE OF INSURANCE FUNDS A. Enterprise risk Enterprise risk refers to the risk caused by the change of enterprise's income from the industrial policy oriented, competition, market demand, the supply of raw materials, the cost of the cost of management and other factors. There are four kinds of enterprise risk: business risk, financial risk, default risk, accounting risk. B. Market risk Market risk refers to the risk of stock price fluctuation caused by various factors. The changes of political situation, economic environment, macro fiscal policy and monetary policy adjustment, the strong and weak of the financial market intervention, the fluctuation of investor psychology and the existence of the speculation, which will affect the stock market directly.



C. Interest rate risk The interest rate risk is the change of the money supply, which leads to the change of the demand of the securities, which will lead to the fluctuation of the stock price. Changes in interest rates and dividend changes in inverse ratio, interest rate cut, dividend increases, so that people will be more money to buy stocks and reduce bank deposits; vice versa, interest rates upward, dividend decline, people will reduce the purchase of stocks and increase bank deposits. D. Price risk Price risk is the risk of price fluctuation. Price risk is often due to the changes in the price of some important products and the impact of the cost and income of most products, resulting in some product price fluctuations, in addition, the price risk is also due to the fluctuation of the whole price index fluctuations. E. Liquidity risk Liquidity risk is the price that investors pay for cash. Generally, the more cash, the smaller the cost, the greater the liquidity is, in turn, the smaller the liquidity of the assets, the greater the risk is, the more likely it is to suffer from the risk of loss.

Ⅲ. THE MANAGEMENT STRATEGY OF INSURANCE COMPANIES ON THE USE OF CAPITAL In our country, the insurance companies as the financial institutions of the emerging powers, in the financial market plays an important role. In summary, the insurance companies in the use of capital, there are a lot of risk, over time, the risk may be turned into a crisis, so the insurance companies in the capital operation may exist and have faced the risk of management and control and prevention. In this regard, we can do the following: A. Establish a clear division of labor organizations Institutions and departments involved in the use of insurance funds, including the board of directors, general manager, risk management, internal audit, risk supervision, and other institutions and departments. The division of responsibilities is not the same as the division of the Department and department, such as the board of directors is responsible for the formulation of the overall policy of the use of funds, set the investment strategy and objectives, choose the investment model, etc.. The function of internal audit is to audit all the investment activities, and to discover and correct the problems in the internal control and operation system. Risk management department's responsibility is to analyze market conditions and risk factors, the existence of risk assessment and control. B. Develop strict internal control system The decision-making, management, supervision and operation procedures of the fund use is complex, the link is many, the involved surface is broad, the personnel is many, the risk is big. So to develop a strict internal control system, so that everyone can be clear their own responsibilities and work processes, to ensure that all the investment activities to get effective supervision, in accordance with the established procedures, the board of directors of the Surety Company to develop the investment strategy and objectives. C. Establish the use of funds management information system Information management is an important risk management tool. The company should have a well-developed information network, external to the domestic and foreign capital, bonds, money market connection. Let the relevant personnel at any time to understand the situation of the market changes; the internal and the director, risk management, audit, supervision, finance, business departments, in the system to timely entry of various business cases. These information to - enough to first hand decision basis for decision makers, for managers to provide timely and accurate data analysis and for supervisors to provide comprehensive accounting data and provide an information platform for investment operators, also true record of transactions, accurate information between the company various agencies and departments communicate adequately. D. To establish a company assessment and risk warning system In the whole process of the use of funds, there are several groups of indicators to assess the way the insurance companies must pay attention to and build, such as risk assessment and monitoring, fund liquidity assessment, asset liability matching assessment, risk factors assessment, capital use efficiency assessment, etc..



In addition, but also to improve the investment risk early warning system, including the overall and various investment areas, varieties and tools of risk warning, so that investment activities are incorporated into the risk management and control system framework, so that the company's business cautious and robust.

Ⅳ. CONCLUSION With the rapid development of the insurance industry in recent years, the premium income of the insurance company is increasing year by year, but the economic benefits of the insurance companies are still not very optimistic. Compared with some developed countries in the west, the capital of our insurance companies is still relatively backward. Through the research, we can draw the conclusion that the use of insurance companies in our country should make the rational use of the funds from the following aspects. A. Comply with the principles of the use of insurance funds In the use of capital, Chinese insurance companies should strictly abide by the principle of the use of funds, that is, the principle of legality, the principle of income, the principle of symmetry, the principle of balance and the principle of social welfare. B. Control the proportion and form structure of insurance fund application Chinese insurance companies should control the proportion of insurance funds and the form of structure, so that appropriate use, in the insurance market is constantly improving the conditions, the appropriate increase in bonds, loans and real estate investment, reduce the proportion of cash and bank deposits, and according to different types of investment to determine the proportion of different investment, maintain a reasonable structure of the use of funds. C. To strengthen the management of the use of funds risk management Chinese insurance companies in the face of various risks, the use of funds, the use of insurance funds should strengthen risk management, gradually release the use of insurance funds, the establishment of a clear division of labor organizations, the establishment of strict internal control system to establish the use of information management information management system, the establishment of corporate assessment and risk warning system, reduce the risk of insurance investment. Reasonable and full use of good insurance funds, to improve the insurance company to meet the ability to deal with a major disaster, and enhance the financial stability of the insured, the insurance is to protect the interests of the insured has important significance.

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Risk Analysis of Insurance companies Fund application in China