Analysis of State-owned holding Insurance Companies’ Risk Management on the Basis of Equity Structure JIA Fan School of Finance Renmin University of China 2011 China International Conference On Insurance And Risk Management July 26th,2011

Contents Equity Structure vs. Risk management Problems Summary & Conclusion Introduction

 Why we choose this topic ？ China LifePICC CPICPING AN Insurance Market

Introduction ERM & Corporate Governance Financial risk Others Zhang Jun(2003) Wang Wen, Shi Min(2007) Fang Yongbin(2007) Zhang Jian(2008) Jiang Shengzhong, Bo Pangtuo(2008) Zhang Wei(2008) Suo Lingyan(2008) Researches about this topic are as follows:

Equity Structure vs. Risk Management Equity Structure Corporate Governance Risk Management There is an important logic line between Equity Structure and Risk Management: The form of equity structure decides the risk level of insurance company’s corporate governance. Diversification trend of equity structure brings new challenges to insurance company’s risk management. Rational arrangement of the equity structure guarantees the effective implementation of the risk management for insurance company.

Equity Structure vs. Risk Management ExamplesFeatures Highly concentrated Highly concentrated Relatively diversified Relatively diversified State-owned equity is highly concentrated. Trend of strengthen controlling by holding company.  China life:68.37%  PICC:69.0%  CPIC:71.94% >10%(3),5%~10%(1),<5%(6)  PING AN:43.26% >10%(0),5%~10%(3),<5%(7) Features of equity structure for state-owned holding insurance company : No absolutely controlling shareholder. Company’s equity is relatively shared by several shareholders.

69%68.37%39.06%8.65% PICC China life CPIC PINGAN State-owned equity

Problems Insider control is inevitable Benefit of the insured can not be guaranteed Risk Manage- ment State-owned equity highly concentrated No actual controller

Problems State-owned equity highly concentrated. No actual controller ※ Property of state-owned assets are not clearly defined. ※ SASAC can not afford these state-owned holding insurance companies liabilities. Insider controller is inevitable. ※ Equity highly concentrated. ※ Equity relatively diversified. Benefit of the insured can not be guaranteed. ※ Insured is the creditor and stakeholder of the insurance company. ※ Profit maximization and insured’s benefit guaranteed.

Summary & Conclusion  Stick to optimization of equity structure ■ Realize the decentralization of equity ■ Decrease the state-owned equity ■ Institutional investors  Strengthen corporate governance construction

Summary & Conclusion  Improved external supervision system arrangement ■ Laws and regulations should relax the limit of investors ■ Increasing the percentage of non state- owned equity ■ Equity structure diversified further ■ Information disclosure ■ Pay-off monitoring mechanism

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