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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: 24 April 2020

Lu-Ming Tseng

For the financial service industry, company–customer conflict is a topic that deserves special attention. This study explores the impacts of ethics institutionalization on the life

Abstract

Purpose

For the financial service industry, company–customer conflict is a topic that deserves special attention. This study explores the impacts of ethics institutionalization on the life insurance agents' ethical decision-making under the company–customer conflicts.

Design/methodology/approach

Two types of company–customer conflicts are studied. In one situation, selling the life insurance product is profitable to the life insurance company, but the product is unsuitable for the customer. In another situation, selling the life insurance product is unprofitable to the life insurance company, while the product will fully satisfy the customer's interests. The study selects Taiwan's full-time life insurance agents as a sample.

Findings

The main results show that implicit ethics institutionalization has a stronger influence on teleological evaluations and deontological evaluations. This study then finds that different types of company–customer conflicts would change the influences of teleological evaluations on ethical intentions and cause different influences of implicit ethics institutionalization on teleological evaluations and deontological evaluations.

Originality/value

Ethics institutionalization and company–customer conflicts are important issues in the literature. This is the first study to discuss the roles that ethics institutionalization and company–customer conflicts play in the ethical decision-making of life insurance agents.

Details

Managerial Finance, vol. 46 no. 9
Type: Research Article
ISSN: 0307-4358

Keywords

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: 16 December 2021

Aparna Bhatia and Megha Mahendru

The purpose of this article is to evaluate revenue efficiency performance of life insurance companies in India. The study also compares if private or public insurance sector is…

Abstract

Purpose

The purpose of this article is to evaluate revenue efficiency performance of life insurance companies in India. The study also compares if private or public insurance sector is more “revenue efficient”. Furthermore, the study determines the nature of return to scale (RTS) and identifies the leaders and laggards amongst insurance companies operating in India.

Design/methodology/approach

Revenue efficiency is calculated by employing data envelopment analysis – a non-parametric approach, on a data set of 24 insurance companies over the period 2013–2014 to 2017–2018.

Findings

The empirical results suggest that life insurance companies in India could generate only 34.4% of revenue, which is very less than what these are expected to generate from the same inputs. Majority of life insurance companies operating in India are operating at decreasing return to scale (DRS). There is a reduction in leaders and the highest proportion of companies is falling in the category of laggards.

Originality/value

As per the best knowledge of researchers, no empirical work has been carried out with respect to measuring the revenue efficiency of Indian insurance companies. The current study appropriately fills the gap by not only calculating the revenue efficiency scores of insurance companies in India but also provides insights into the causes of revenue inefficiencies. It also gives implications for efficient and effective management of insurance companies.

Details

Benchmarking: An International Journal, vol. 29 no. 10
Type: Research Article
ISSN: 1463-5771

Keywords

Article
Publication date: 5 April 2013

Joseph Oscar Akotey and Joshua Abor

The purpose of this paper is to examine the risk management practices of life assurance firms and non‐life insurance firms.

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Abstract

Purpose

The purpose of this paper is to examine the risk management practices of life assurance firms and non‐life insurance firms.

Design/methodology/approach

Through a comparative case study methodology, the study assesses the state of risk management in both life assurance companies and non‐life insurance firms to determine whether they exhibit different or similar risk management practices. The results of the survey were also analyzed and compared to the principles of good practices in financial risk management.

Findings

The findings of the study revealed some differences and similarities in the risk management practices of life and non‐life insurance firms. Almost all the life companies have stated their risk appetite levels, which enable them to identify which risks to absorb and which ones to transfer. But non‐life insurance firms have not laid down their risk tolerance levels explicitly. The results further revealed that the industry lacks sufficient personnel with the requisite risk management skills and that the sector does not manage risks proactively, rather they do so in a reactive response to regulatory directives.

Practical implications

Effective management of risks by insurers will increase the penetration of insurance in Ghana.

Social implications

Risk management is a crucial issue, not only for the survival and profitability of the insurance industry, but also for the socio‐economic growth and development of the whole economy. As major risks underwriters, insurance companies need to adopt good practices or quality measures in the management of financial risk. This is important, more so, as the industry prepares to re‐position itself to underwrite the risks in the emerging oil and gas industry of Ghana.

Originality/value

Research into financial risk management in the insurance industry from the Ghanaian perspective is rare. This study is therefore timely and its findings are invaluable for the efficient management of financial risk in the insurance industry.

Details

Qualitative Research in Financial Markets, vol. 5 no. 1
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 10 December 2018

Rozaimah Zainudin, Nurul Shahnaz Ahmad Mahdzan and Ee Shan Leong

This study is an exploratory study investigating firm-specific internal factors that influence the profitability performance of selected life insurance firms in eight Asian…

1945

Abstract

Purpose

This study is an exploratory study investigating firm-specific internal factors that influence the profitability performance of selected life insurance firms in eight Asian countries (China, Hong Kong, Taiwan, Singapore, Japan, South Korea, Thailand and Malaysia) from 2008-2014. This paper aims to focus on internal rather than external factors based on the resource-based view suggesting that the internal resources of a firm are key to gaining competitive advantage.

Design/methodology/approach

The authors used panel data estimation model to test our six hypotheses on these eight selected countries for the period between 2008 and 2014.

Findings

A random effect model reveals that size, volume of capital and underwriting risk are significantly related to the profitability of Asian life insurance firm, measured as return on assets. Premium growth, asset tangibility and liquidity are insignificant predictors of the profitability performance of these life insurance firms.

Practical implications

Three implications of this study are that life insurance firms need to proactively tap new business opportunities by attracting younger generation customers via e-marketing technologies; secure larger capital base to finance their market expansion strategies; and focus on intangible resources such as goodwill, brand equity and reputation.

Originality/value

This study contributes to the literature by conducting an exploratory regional-based panel study of Asian life insurance firms to find common factors that contribute towards profitability. The study is conducted on a collective sample of Asian life insurance firms based on the premise that the firms included in the sample engage in cross-border activities and share the same international financial reporting standards. These commonalities allow us to treat the firms jointly in a somewhat similar Asian macroeconomic environment.

Details

Journal of Asia Business Studies, vol. 12 no. 4
Type: Research Article
ISSN: 1558-7894

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 November 2012

Nadine Gatzert and Hannah Wesker

Systematic mortality risk, i.e. the risk of unexpected changes in mortality and survival rates, can substantially impact a life insurers' risk and solvency situation. By using the…

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Abstract

Purpose

Systematic mortality risk, i.e. the risk of unexpected changes in mortality and survival rates, can substantially impact a life insurers' risk and solvency situation. By using the “natural hedge” between life insurance and annuities, insurance companies have an effective tool for reducing their net‐exposure. The purpose of this paper is to analyze this risk management tool and to quantify its effectiveness in hedging against changes in mortality with respect to default risk measures.

Design/methodology/approach

To achieve this goal, the paper models the insurance company as a whole and takes into account the interaction between assets and liabilities. Systematic mortality risk is considered in two ways. First, systematic mortality risk is modeled using scenario analyses and, second, empirically observed changes in mortality rates for the last 10‐15 years are used.

Findings

The paper demonstrates that the consideration of both the asset and liability side is vital to obtain deeper insight into the impact of natural hedging on an insurer's risk situation and shows how to reach a desired safety level while simultaneously immunizing the portfolio against changes in mortality rates.

Originality/value

The paper contributes to the literature by considering the insurance company as a whole in a multi‐period setting and taking into account both, assets and liabilities, as well as their interaction. Furthermore, the paper shows how to obtain a desired safety level while simultaneously immunizing a portfolio against changes in default risk.

Details

The Journal of Risk Finance, vol. 13 no. 5
Type: Research Article
ISSN: 1526-5943

Keywords

Book part
Publication date: 5 May 2017

Rashmi Malhotra, D. K. Malhotra and Akash Dania

The economic crisis of 2007–2009 had a major negative impact on financial institutions in general. Health and life insurance industry continues to face growth challenges even six…

Abstract

The economic crisis of 2007–2009 had a major negative impact on financial institutions in general. Health and life insurance industry continues to face growth challenges even six years after the economic crisis. Due to the challenges faced by health and life insurance industry, several companies in this industry have merged and some decided to get out of this business altogether. This study benchmarks 10 life and health insurance companies on the basis of return on equity, investment yield, and loss ratio for the year 2009 and 2014.

Details

Applications of Management Science
Type: Book
ISBN: 978-1-78714-282-4

Keywords

Article
Publication date: 17 May 2013

Joseph Oscar Akotey, Frank G. Sackey, Lordina Amoah and Richard Frimpong Manso

The aim of this research is to assess the financial performance of the life insurance industry of an emerging economy. In particular the study delves into the major determinants…

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Abstract

Purpose

The aim of this research is to assess the financial performance of the life insurance industry of an emerging economy. In particular the study delves into the major determinants of the profitability of the life insurance industry of Ghana. The study also examines the relationship among the three measures of insurers' profitability, which are investment income, underwriting profit and the overall (total) net profit.

Design/methodology/approach

The annual financial statements of ten life insurance companies covering a period of 11 years (2000‐2010) were sampled and analyzed through panel regression.

Findings

The findings indicate that whereas gross written premiums have a positive relationship with insurers' sales profitability, its relationship with investment income is a negative one. Also, the results showed that life insurers have been incurring large underwriting losses due to overtrading and price undercutting. The results further revealed a setting‐off rather than a complementary relationship between underwriting profit and investment income towards the enhancement of the overall profitability of life insurers.

Practical implications

The policy implications of this study for the stakeholders of the life insurance industry are enormous. For instance, insurers must have well‐resourced actuary departments to perform price validation of all policies in order to prevent over‐trading and price undercutting by insurance marketing agents. In addition, the intention of the NIC to adopt a risk‐based approach in its supervision is not only timely but a very significant move that will improve upon the accounting and records keeping standards of the industry as well as the governance and risk management structures of the sector.

Social implications

Being too obsessed with premium growth without adequate price validation can lead to self‐destruction such as huge underwriting losses. Large underwriting losses can lead to insurance insolvency during periods of cluster claims.

Originality/value

This study fulfills an urgent need to investigate the things that are crucial for the survival, growth and profitability of life insurers in an emerging economy.

Details

The Journal of Risk Finance, vol. 14 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

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