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Taiwan insurance industry deregulates the investment restriction on foreign assets from 1992 and deploys more and more capital in foreign risky assets. Until the end of 2012, the foreign asset holding is 40.06% for life insurance industry and 15.39% for property insurance industry of Taiwan.
Risk management is a hot issue for practice managers and academic researchers. Essentially, insurance is one of the methods for controlling risk. The individuals or firms transfer their risk to insurance company. So the insurance company should do her best on risk management for investment.
This paper studies the risk management model of foreign risky asset for Taiwan’s insurance industry. Based on the sample period from February1992 to October2013, we analyze the correlations between the stock return of 14 public property and life insurance companies and foreign investment risk factor return. The dataset of foreign risk factor is obtained from Datastream and includes international stock market, international bond market, international commodity market, international interest rate market, and international forex market.
The main result shows that the global investment risk factor impact largely the stock return of Taiwan’s insurance industry. And the most impaction foreign investment risk factors are international stock market, international bond market, and international commodity marketrisk factors. Not only the factor loadings are statistically significant, also the model shows higher explanatory power.
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