Factors That Affect Life Insurance Industry

Factors That Affect Life Insurance Industry Solvency

BY

Gilbert Chan
1030200020
Finance

Terry Lu
1030200075
Finance

A Business Project Submitted to the Division of
Business and Management in Partial Fulfilment of the Graduation Requirement for the Degree of
Bachelor of Business Administration (Honours)

Beijing Normal University – Hong Kong Baptist University
United International College

April 2014
Acknowledgment
First and foremost, my deepest gratitude goes to our supervisor, Dr. Yong Sun, a helpful and responsible scholar, for his constant encouragement and guidance. He has walked us through all the steps of our thesis. Without his patient guidance, this thesis would not have been its present form. Second, I would express my gratitude to the other professors in Business and Management Division in United International College, who help us to develop the data analyze of our thesis. Last but not least, I also own my heartfelt gratitude to my friends, classmates and roommates, who offer me their great support during we have some problems of our thesis.

Table of Contents

Acknowledgement ii
Table of Contents iii
List of Figures vi
List of Tables vii
Abstract viii
Chapter 1: Introduction 1.1 Background and Meaning of the Study 1 1.2 Basic Framework and Methodolog 2 1.2.1 Basic Framework 2 1.2.2 Methodology 3
Chapter 2: Literature Review 2.1 Foreign Literature Review 3 2.1.1 Study on Determination of the Minimum Solvency Margin 3 2.1.2 Study on the Internal Factors That Affect Solvency of Insurance Company 4 2.1.3 Study on the External Factors That Affect Solvency of Insurance Company 5 2.1 Foreign Literature Review 6 2.2.1 Domestic Literature Review 6 2.2.2 Domestic Literature Review Summary 7
Chapter 3: Research Framework
Chapter 4: Research Methodology
4.1 Samples selection 8
4.2 Basic theory of

References: 2.1.1 Study on Determination of the Minimum Solvency Margin Champagne (1961) defined the solvency margin as the net assets that assets exceed its liability Kasterlijn & DeWit (1980) constructed a ratio model, which is beta distribution to determine solvency margins. It must satisfy that the sum of the claim payment cannot be larger than the total gross premium. GISG (1983) thought that the solvency margin was composed of five parts: claim volatility, probability of asset devaluation, underwriting risk, reinsurance risk and other risk. They constructed a solvency model by quantizing these risks. Kimetal’s research (1995) shows that a relatively rapid premium revenue growth indicates the high approbation degree of an insurance company though, it causes the weakness of solvency. Browne. M. J and Robert E. Hoyt (1995) analyzed the effect of inadequate solvency rates from the changes in the market economy environment by using the Logistic regression model. Fang Su (2001) analyzed financial dates from 6 insurance companies and ranked the internal factors that affect solvency. Most to least serious, they are reinsurance rate, liquidity ratio, gross interest rate, investment return rate and combined ratio.