Search results

1 – 10 of 742
Article
Publication date: 28 June 2019

Jyh-Horng Lin, Fu-Wei Huang and Shi Chen

The purpose of this paper is to develop a theoretical framework to answer the following question: What are the consequences of sunflower behavior as well as spread behavior for…

Abstract

Purpose

The purpose of this paper is to develop a theoretical framework to answer the following question: What are the consequences of sunflower behavior as well as spread behavior for how asset-liability management is administrated in a life insurance company?

Design/methodology/approach

This paper takes into account the following: the chief executive officer (CEO) of a life insurance company confirms the board of directors’ belief – the preference of the like of higher return relative to the dislike of higher risk; the authors call such behavior sunflower management; the life insurance policyholder is entitled to a guaranteed interest rate and a participation percentage of the company’s investment surplus; and the authors examine the optimal insurer interest margin, i.e., the spread between the loan rate and the guaranteed rate.

Findings

Sunflower management translates into lower utility for the CEO and makes the CEO more prudent to risk-taking at an increased insurer interest margin for the provision of life insurance contracts. The effect of the guaranteed rate on the margin is ambiguous and depends on the level of guarantee itself. An increase in the participation level decreases the CEO’s loan risk-taking at an increased margin. It is shown that a trend toward higher return like of the board’s belief produces a corresponding trend toward the CEO’s decreasing risk-taking when the return like is revealed strongly. The results indicate that sunflower management as such is an important determinant in ensuring a safe insurance system.

Originality/value

This is the first paper to construct a contingent claim model to evaluate the expected value of the CEO’s utility function defined in terms of the equity returns and the equity risks of a life insurance company. The model explicitly considers CEO sunflower behavior, CEO spread behavior and the limited liability of shareholders.

Details

Review of Behavioral Finance, vol. 11 no. 3
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 17 September 2018

Jyh-Horng Lin, Xuelian Li and Fu-Wei Huang

This paper aims to theoretically examine the effects of regulatory policyholder protection on spread behavior and default probability of a life insurance company.

Abstract

Purpose

This paper aims to theoretically examine the effects of regulatory policyholder protection on spread behavior and default probability of a life insurance company.

Design/methodology/approach

The authors construct a contingent claim model for the valuation of the equity of a life insurance company. Then, they extend it to model default risk measures associated with a more appropriate behavioral mode of strategic invested asset rate-setting under regulation.

Findings

The findings established that the optimal insurer interest margin is explicitly modeled by a spread between the loan rate and the required guaranteed rate of the company. The effect of the guaranteed rate on the insurer interest margin is positive when the barrier is low, whereas it is negative when the barrier is high. As the barrier increases, the positive effect of the guaranteed rate on the default risk is increased, the negative effect of the participation on the insurer interest margin is decreased and the positive effect of the participation on the default risk is decreased.

Practical implications

Several results derived that should be of interest to investors, analysts, supervising agencies and policymakers. For example, policyholders protected by increasing the guaranteed rate may create a higher risk for the life insurance company to meet its obligations.

Originality/value

The authors’ approach is a significant departure from the existing literature; they differentiate among path-dependent, barrier options and suggest that the life insurance company’s defaults are more commonly triggered by regulatory responses than debt default.

Details

Journal of Modelling in Management, vol. 13 no. 3
Type: Research Article
ISSN: 1746-5664

Keywords

Article
Publication date: 2 October 2018

Jyh-Horng Lin, Shi Chen and Fu-Wei Huang

The purpose of this paper is to develop a capped barrier option framework to consider the politically preferential treatment for bank loans incentivized by government capital…

Abstract

Purpose

The purpose of this paper is to develop a capped barrier option framework to consider the politically preferential treatment for bank loans incentivized by government capital injections and calculate loan-risk sensitive insurance premiums.

Design/methodology/approach

This paper takes a capped barrier option approach to the market valuation of the equity of the bank and the liability of the deposit insurer. The cap demonstrates the dynamics of a politically connected borrowing firm’s asset and highlights the truncated nature of loan payoffs. The barrier addresses that default can occur at any time before the maturity date. The bank participating in a government capital injection program is required to fund the politically connected firm that has preferential access to financing.

Findings

Political connection as such makes the bank more prone to risk taking at a reduced interest margin, produces greater safety for the bank owing to government capital injections, and leads to increasing the fair deposit insurance premium. The positive effect of political connection on the deposit insurance premium, which ignores the cap and the barrier yields significant over-estimation.

Originality/value

The study on the politically connected borrowing firm shows that political connection is likely to affect the distressed bank’s performance, yielding the political-connection cost of a reduced bank interest margin and the political-connection benefit of a reduced bank equity risk, contributing the literature on political connection and bank bailout.

Details

International Journal of Managerial Finance, vol. 15 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 31 January 2022

Youwei Yang, Wenjun Long and Calum G. Turvey

This paper investigates Chinese agricultural insurance agents willingness to offer (WTO) livestock insurance based on the variations of eight main attributes of livestock…

Abstract

Purpose

This paper investigates Chinese agricultural insurance agents willingness to offer (WTO) livestock insurance based on the variations of eight main attributes of livestock insurance.

Design/methodology/approach

This study implements discrete choice experiments (DCE) with actual insurance agents who design, sell and operate livestock insurance in China. The choice experiment of this study is based on the D-optimal approach, a six-block design, with 15 cards per block and two choices per card. The sample size was 211. Econometrics results are based on conditional and mixed logit models.

Findings

The authors find that the subsidy effect is enormous; a one level increase of subsidy leads to 3.166 times higher probability to offer. This subsidy effect is important as it confirms the endogenous structure between price and quantity in insurance offering, where subsidy does not only incentivize demand but also the supply. Another main factor of insurance investigated is the impact of different coverage types on agents' WTO. The authors find that agents prefer mortality insurance the most, followed by revenue insurance and profit insurance, while Index-Based Livestock Insurance (IBLI) is the least preferred to offer. Agents' knowledge about these newer types of insurance supports their WTO as well; thus, proper education is necessary to promote the more advanced types of livestock insurance.

Research limitations/implications

A limitation is that in the presence of COVID 19, and administrative issues at the local level, the sample was not randomly drawn. Nonetheless, the authors believe that there is enough diversity across participants, insurers and provinces and have done sufficient robustness checks to support results and conclusions.

Practical implications

This study provides further validation for the DCE research method that could potentially be applied to different analyses: using choice experiments to study insurers and reveal their preferences, through combinations of various levels of core attributes for insurance products. The findings and contribution are critical to the reform and improvement of livestock insurance in China and for insurance markets more broadly. The authors find that insurers do not place equal weights or values on insurance product attributes and do not view types of insurance equally. In other words, while farmers may hold different preferences about the type of insurance they demand, the results suggest that insurers also hold preferences in the type of insurance they sell.

Originality/value

So far as the authors are aware, this is the first DCE designed around the supply of insurance products with the subjects being insurance agents, marketers and executives.

Details

Agricultural Finance Review, vol. 82 no. 5
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 1 February 1994

Iskandar S. Hamwi and Farhang Niroomand

The EC single market is one of the world's largest. It offers both opportunities and challenges to U.S. insurers wanting to expand their operations into that market. Some U.S…

Abstract

The EC single market is one of the world's largest. It offers both opportunities and challenges to U.S. insurers wanting to expand their operations into that market. Some U.S. companies possess unique qualifications that give them a good competitive position vs. European companies. Greater financial capacity, extensive underwriting experience particularly in the area of environmental U.S. insurers have focused on their vast home market which is responsible for approximately 37 percent of global insurance premiums. pollution and product liability, unique products and services of special appeal to European consumers, and the ability to service integrated international insurance programs are just a few examples. However, certain barriers may stand in the way of U.S. insurers’ entry to Europe. High entry cost, regulatory constraints, keen domestic competition, the possibility of lower profit margins, and the likelihood of certain protectionist policies are examples of these barriers. U.S. insurers are also concerned about entering an unknown market with radically different cultural characteristics and considerable national differences still existing among its members which would require adapting their approaches to the peculiarities of each country's insurance market instead of being able to use their own ideas about methods of operation. Nonetheless, U.S. insurers should abandon their domestic orientation and conservative nature and seek to resolve those difficulties that hinder their path of entry to Europe. The EC market is too important to be ignored.

Details

Competitiveness Review: An International Business Journal, vol. 4 no. 2
Type: Research Article
ISSN: 1059-5422

Article
Publication date: 1 April 2005

S.P.J. von Wielligh and J.P. van den Berg

The objective of this study was to identify the impact of a perceived inadequacy of authoritative South African financial reporting guidance for long‐term insurers, on the basic…

272

Abstract

The objective of this study was to identify the impact of a perceived inadequacy of authoritative South African financial reporting guidance for long‐term insurers, on the basic financial statement characteristic of comparability. The authors attempted to identify areas of non‐comparable presentation and disclosure and to suggest relevant guidance. To assess comparability, the financial statements of five insurers were evaluated using a checklist specifically developed for this study. This process identified seven main categories of significant non‐comparable presentation and disclosure practices. Solutions were proposed for these areas, based inter alia on existing international literature and guidance.

Article
Publication date: 1 August 2019

Segundo Camino-Mogro and Natalia Bermúdez-Barrezueta

The purpose of this paper is is to identify the main determinants of insurance profitability on life and non-life segments to obtain which variables affect in each market of the…

2053

Abstract

Purpose

The purpose of this paper is is to identify the main determinants of insurance profitability on life and non-life segments to obtain which variables affect in each market of the Ecuadorian insurance sector.

Design/methodology/approach

The authors use a large panel data set with financial information from 2001 to 2017 and estimate the determinants through a panel corrected standard errors regression.

Findings

The authors found that net premiums, technical reserves, capital ratio and score efficiency are micro-determinants in the life insurance sector, whereas in the non-life sector, the micro-determinants include also claim level and liquidity ratio; moreover, the authors found that HHI is a determinant of profitability only in the life insurance. Among the macro determinants set, the authors found that the interest rate has also a significant impact both in the life and non-life insurance.

Originality/value

The authors analyze a dollarized emerging country, which is the first time in this kind of studies. The authors also include the structure-conduct-performance and relative market power paradigm as well as the ES hypothesis, calculated through the data envelopment analysis, as determinants of insurance profitability. Finally, this is the first research to examine the determinants of profitability in Latin American and Caribbean insurers.

Details

International Journal of Emerging Markets, vol. 14 no. 5
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 4 January 2024

Sylvester Senyo Horvey, Jones Odei-Mensah and Albert Mushai

Insurance companies play a significant role in every economy; hence, it is essential to investigate and understand the factors that propel their profitability. Unlike previous…

Abstract

Purpose

Insurance companies play a significant role in every economy; hence, it is essential to investigate and understand the factors that propel their profitability. Unlike previous studies that present a linear relationship, this study provides initial evidence by exploring the non-linear impacts of the determinants of profitability amongst life insurers in South Africa.

Design/methodology/approach

The study uses a panel dataset of 62 life insurers in South Africa, covering 2013–2019. The generalised method of moments and the dynamic panel threshold estimation technique were used to estimate the relationship.

Findings

The empirical results from the direct relationship reveal that investment income and solvency significantly predict life insurance companies' profitability. On the other hand, underwriting risk, reinsurance and size reduce profitability. Further, the dynamic panel threshold analysis confirms non-linearities in the relationships. The results show that insurance size, investment income and solvency promote profitability beyond a threshold level, implying a propelling effect on life insurers' profitability at higher levels. Below the threshold, these factors have an adverse effect. The study further points to underwriting risk, reinsurance and leverage having a reduced effect on life insurers' profitability when they fall above the threshold level.

Practical implications

The findings suggest that insurers interested in boosting their profit position must commit more resources to maintain their solvency and manage their assets and returns on investment. The study further recommends that effective control of underwriting risk is critical to the profitability of the life insurance industry.

Originality/value

The study contributes to the literature by providing first-time evidence on the determinants of life insurance companies' profitability by way of exploring threshold effects in South Africa.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 22 February 2013

Samir K. Srivastava and Avishek Ray

The purpose of this paper is to benchmark the solvency status of Indian general insurance firms.

1231

Abstract

Purpose

The purpose of this paper is to benchmark the solvency status of Indian general insurance firms.

Design/methodology/approach

The paper collects, compiles and analyses the key financial, operational and business data of eight Indian insurance firms. The authors first decide on initial firm‐specific economic variables and use data of last five years from IRDA Reports and Company Annual Reports. The NAIC IRIS ratios method was used to obtain an initial risk classification. This was used as a proxy of insolvency risk. Linear regression and logit techniques were thereafter applied to estimate the significant factors (direction‐wise and magnitude‐wise) which influence insurer solvency.

Findings

The results suggest that the factors that most significantly influence Indian non‐life insurers are lines of business, the firm's market share, the premium growth rate, the underwriting performance and the claims incurred. Further, the factors which have the strongest effect are market share, change in inflation rate, firm size, lines of business and claims incurred.

Research limitations/implications

The sample of Indian general insurers used is limited with regard to the time span. No holdout sample was used and the entire data set was subjected to statistical analysis. These somewhat limit the findings and implications.

Practical implications

The paper provides insurers with easy‐to‐use operational and marketing indicators to benchmark their solvency risk. It will lead to competitive goal setting for continuous improvement. Estimation of appropriate market/economic parameters can be a useful input for regulators. A few suggested indicators are new.

Originality/value

Previous studies of insurance companies have focused on developed economies (USA, Europe) or the Asian Markets (China and Japan). This paper determines a set of marketing, financial and operational variables to predict benchmark financial strength of general insurance firms in India. It incorporates qualitative inputs from practising managers and industry experts before carrying out quantitative modeling and analysis.

Details

Benchmarking: An International Journal, vol. 20 no. 1
Type: Research Article
ISSN: 1463-5771

Keywords

Article
Publication date: 1 April 2001

DAVID F. BABBEL

While asset/liability management (A/L M) has been applied widely by insurers for 15 years, it has had mixed results. This article describes how initial efforts were unsuccessful…

Abstract

While asset/liability management (A/L M) has been applied widely by insurers for 15 years, it has had mixed results. This article describes how initial efforts were unsuccessful, due to the focus on accounting values rather than economic values. The author asserts that insurers must rectify this misstep before A/L M can become a useful tool for them. Several forces are combining to ensure that this takes place in the near future.

Details

The Journal of Risk Finance, vol. 3 no. 1
Type: Research Article
ISSN: 1526-5943

1 – 10 of 742