Shanghai University of Finance and Economics, China Dynamic Analysis for the Financing Capacity of Chinese Insurance Market Su Fang & Chu Liping Shanghai University of Finance and Economics, China

Premium increasing so fast

So More and more insurance company were almost insolvency. They need more money from the capital market every year.

Investment to Insurance 2009: 88.54 billion RMB …… 2011: 195.20 billion RMB 2012: More than 200 billion RMB.

Revolving Facility Financing Expansion Solvency Decline

Financing Channel Internal financing: internal accumulation External financing: Debt Finance Equity Finance

Hypothesis H1: The contribution of external financing are bigger than that of Internal financing. H2:The comprehensive financial capability of life insurance company are stronger than that of nonlife insurance company. H3:The comprehensive financial capability of Chinese insurance company are stronger than that of Foreign insurance company. H4: The difference come from different company, instead of different industry.

Index Indexes Meanings Relationship Internal financing indexes Return rate of total assets Net profit / Total assets + Retained earnings (Surplus + Undistributed profit) / Total assets Debt financing indexes Solvency Index (Cash+ Marketable securities) / Total assets Capital liability rate Capital liability/ Total assets Equity financing indexes Equity ratio (Paid-in capital + Capital fund) / Total assets Capital rate of change (Annual paid-up capital of this year - Annual paid-up capital of last year) / Total paid-up capital

Model 1. Determine Index Weight by Using Entropy Method 2. Establishing of a Dynamic Comprehensive Evaluation Model 3. Using the Theil Index to Measure the Difference in Source

The Analysis Process

1. Dynamic Comparison of Comprehensive Financing Ability Order: Debt, Equity and Internal H1 is true.

Average: Life: 0.34; Nonlife:0.38. Nonlife is bigger than that of Life. H2 isn’t true.

Chinese is almost the same with that of Foreign. H3 isn’t true.

2. Static Comparison of Comprehensive Financing Nonlife is always bigger than that of Life. H2 isn’t true.

Chinese and Foreign are almost same in different year. H3 isn’t true.

3. Dynamic Comprehensive Financing Ability from Different Channels Internal Bigger: Nonlife; Chinese

Debt Bigger: Nonlife; Chinese

Equity Bigger: Nonlife; Chinese

4. Overall Differences and Industry Decomposition Year Overall Life Non-life Within industry Among industry 2008 2.3213 2.2198 1.5469 1.8354 0.4859 2009 2.3553 2.1671 1.4811 1.7792 0.5760 2010 2.3279 2.0523 1.4873 1.7261 0.6018 H4 isn’t true. Industry is the main reason of difference. The difference in life are bigger than that in nonlife.

Conclusions 1. Comparison between Life and Non-life Insurance Industries Within the sample period, non-life insurance companies’ financing ability is stronger than that of life insurance companies. From business style, life insurance companies have big difference and non-life ones have small difference.

Conclusions 2. From the nature of capital, foreign-funded companies’ comprehensive financing ability improves quickly, and the outstanding foreign companies all are good in all aspects. 3. From the scale, smaller companies have stronger comprehensive financing capability than large companies.

Conclusions 4. From the financing channel, external financing has a large contribution than internal financing, offering at the same time the basic support for the equity financing preference theory.