Research on Development of Insurance Industry in Its Integration with Capital Market

Abstract: Insurance is the industry of risk management;it is aimed at diversifying andcontrolling risk. In order to carry out the function of diversifying risk andcompensation, insurance company must interact with capital market to finance andinvest which will enhance the insurance company's total income. In moderndeveloped country, it is the obvious trend to integrate insurance industry with capitalmarket. Along with the evolution of financial deepening in China, people's riskconsciousness is gradually progressing. But after the entrance to WTO, Chinesefinancial industry faced not only competition outside but also restriction inside, suchas diseconomies of scale, single structure of operation and so on. Consequently, it is agood method to research the integration of insurance industry and capital market.This paper includes 3 parts and proceeds as followings: firstly, proceeding withthe concept of insurance industry and capital market as well as the meaning ofintegration, whereafter analyses the inevitability of the integration of insuranceindustry and capital market;secondly, the author introduces the foreign integrationsystems, and also analyses the present integration system in China;lastly, putsforward how to improve the integration of the insurance industry and capital marketin China.The first part: theory analysis about the integration of insurance industry andcapital market.Firstly, through the basic theory analysis the paper introduces concepts of theinsurance industry and capital market in detail, expressing the characteristics ofinsurance industry itself determines the two must be integrated.Secondly, from the point of view of impetus between insurance industryand capital market this paper shows the behavior that the insurance industry andcapital market integrate. Under the background of fact that ability of giving cover forof international insurance company surplus and increased competition in moderntimes, insurance company remedies the loss and realizes the insurance's steadymanagement. Insurance company enters the capital market as the financing person,thereby realizes the integration of insurance and capital market. Depending on capitalmarket tools, insurance industry diversify and transfer risk to the capital market.Insurance industry with the development of new insurance product and service byvirtue of the platform of capital market satisfy the investor's need. In other way round,insurance industry also promote the development of capital market. It provides largemount fund to capital market and expands the troop of organization investor,accordingly consummates the structure of capital market and enhances the efficiencyof market.The second part: research on the integration of insurance industry and capitalmarket in USA, Japan and China.Firstly, this paper investigates one of the most representative countries: the USA.The USA becomes the most powerful insurance country, relying on its developedeconomy. Its high development is due to the developed capital market and financialinnovation of insurance. The most typical characteristic of American insurance is itsdevelopment of insurance derivatives which based on capital market, such as calamityoption, calamity futures, catastrophe bond and risk securities, etc.Secondly, this paper investigates another representative country: Japan.Japan has the most developed life insurance industry, whose company has large scaleand high monopolizing degree. In long-term development, Japanforms the characterized stock holding as" legal person-centered" and has a greatdevelopment in the aspect of insurance investment.Thirdly, this paper investigates China's status quo.With the long integrated course of insurance industry and capital market in China,insurance industry gradually integrate with capital market and insurance fund hasentered the bond market, market of fund and stock market. Combined with the actualcondition of domestic insurance market and the company's own managerial ability,China's insurance industry developed investment-linked insurance product on thebasis of the same foreign product. The people's insurance company of China andChina life insurance company issued stock in capital market aboard in 2003, whichindicated that China's insurance industry has successfully strengthen its strength byvirtue of capital market.The last part: researches the inevitability of integration of insurance industry andcapital market in China and concludes how to improve it.It is inevitable of integrating insurance industry and capital market, and hassignificant influence on every aspect of economy in China. Insurance company canfinance enough capital and diversify risk sufficiently in capital market. Although ithas the inevitability, the integration process also exist some obstacle. For example, thecapital market in China lack of scope and depth, it is hard to gain stable income;otherwise there is inconsequent investor structure and full of speculation which makesthe price fluctuated in stock market, therefore the systematic risk is in high proportionin China's security market. All the problems above cumber the integration, so nextthis paper expounds the way to integrate China's insurance industry and capital marketin particularly.This paper solves the problems from six aspects. The first is to changethe mode of insurance management and investment and release the restriction ofstatute;the second is to speed up the financial innovation and promote theexploitation of investment-linked insurance product;the third is to realizesecuritization of insurance;the forth is to set up financial holding group of insuranceand encourage the insurance, bank , securities to participate in each other by shares;the fifth is that insurance company should be listed and entered the capital marketdirectly;the last one is to set up and amplify the supervision of the integration ofinsurance industry and capital market.As the financial service industry, insurance industry plays an important rolebecause of the function of diversifying risk, compensation and social protection. So asto increase insurance yield and insurance demand, promoting the integration ofinsurance industry and capital market is the best method. Well then it will enlarge thecapital of insurance company as well as diversify risk in a large range. Eventually thefinancial system will more perfect…
Key words: Countryside; Social insurance for the aged; Family care; Land security; Fund