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Article
Publication date: 19 May 2014

Enoch Nii Boi Quaye, Charles Andoh and Anthony Q.Q. Aboagye

The purpose of this study is to assess the level and variability of Ghanaian property and liability insurer’s reserve estimates to examine its sources and ascertain if…

Abstract

Purpose

The purpose of this study is to assess the level and variability of Ghanaian property and liability insurer’s reserve estimates to examine its sources and ascertain if reserve errors are random or not (i.e. manipulated or not).

Design/methodology/approach

It uses information on insurer claim reserve provisions, claims outstanding, claims incurred and claims paid for the period of 2000-2010. Categorizing the sources of variation as endogenous and exogenous, the authors use the panel correlated standard error regression model to determine sources and magnitude of industry reserve error.

Findings

The study finds that size, age, lag of loss reserve error, inflation rate and real gross domestic product are significant in determining the degree of reserve error variation. Type of ownership (domestic or foreign) is, however, not a significant source of variation. Further, the authors found that industry reserve errors are random (not manipulated) across firms, suggesting that sampled insurers act independently on reserve error decision making and are not influenced by industry trends and competition.

Research limitations/implications

The main research study limitation is the difficulty involved in obtaining annual statements from insurance companies in Ghana. Reluctance of companies to make statements available impeded on the smooth flow of the study during data collection.

Practical implications

Policy-wise, this suggest that regulatory bodies can uniquely set reserve error levels for existing firms with little influence on competition. Further, the Ghanaian insurance regulator does not to focus on the type of ownership (foreign or local) when setting regulatory standards. However, size of the company and age (length of operation) should be considered.

Originality/value

This paper is the first empirical study to examine the loss reserve error and loss reserve variability of Ghanaian property and liability insurance companies.

Details

The Journal of Risk Finance, vol. 15 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

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Article
Publication date: 13 April 2012

Fang Sun, Xiangjing Wei and Yang Xu

The purpose of this paper is to investigate two audit committee characteristics – independence and expertise of the audit committee – and the property‐liability insurers'…

Abstract

Purpose

The purpose of this paper is to investigate two audit committee characteristics – independence and expertise of the audit committee – and the property‐liability insurers' financial reporting quality, which is proxied by loss reserve error.

Design/methodology/approach

The authors' hypotheses are tested using multivariate analysis where the loss reserve error is the dependent variable, and audit committee independence, and four types of audit committee financial expertise (accounting, finance, supervisory, and insurance expertise) are the testing variables.

Findings

It is found that accounting, finance, and insurance financial expertise are associated with more accurate loss reserve estimate. In contrast, a supervisory financial expertise and an independence audit committee are not found to be associated with better loss reserve quality.

Research limitations/implications

The sample includes publicly‐held property‐liability insurers. Although the results from publicly‐held insurers could provide a good laboratory for such investigation in all insurers, they might be limited due to different organization structures of public vs private insurers.

Practical implications

The implications of the study are important for the SEC and NAIC. The results suggest that the requirements on the audit committee financial expertise would be necessary, even in highly regulated industry, such as property‐casualty insurance.

Originality/value

The paper contributes to the extant literature by studying audit committee characteristics in the insurance industry. It also contributes to the extant literature on audit committee effectiveness by decomposing the financial expertise into four types of financial expertise (accounting, finance, supervisory, or insurance expertise) and investigates which (if any) of these four types of expertise really drives the improvement of loss reserve quality.

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Article
Publication date: 3 July 2009

Jin Park, Sukho Lee and Han Bin Kang

The purpose of this paper is to investigate coexistence of multiple distribution systems in property‐casualty (P/C) insurance industry in the USA.

Abstract

Purpose

The purpose of this paper is to investigate coexistence of multiple distribution systems in property‐casualty (P/C) insurance industry in the USA.

Design/methodology/approach

Stochastic frontier analysis is used to measure cost and revenue efficiencies of P/C insurance companies utilizing different distribution systems.

Findings

Independent agent insurers are found to be cost inefficient compared to insurers with other distribution systems, but the independent agent insurers have better revenue efficiency compared to their long counterpart, the exclusive agent insurers. This study also documents that the direct writing system provides higher cost and revenue efficiencies than other distribution systems, although their efficiencies have been deteriorating during the same time period.

Research limitations/implications

Future research could examine whether the findings change by measuring efficiencies with a non‐parametric method, i.e. data envelopment analysis.

Practical implications

A start‐up insurer should consider a direct writing system, which is most cost and revenue efficient.

Originality/value

This paper investigates efficiencies of insurers by four different distribution systems and tracks efficiency changes of insurers over 12‐year periods.

Details

Managerial Finance, vol. 35 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

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Article
Publication date: 1 August 1998

I. Civcir and A. Parikh

The objective of this study is to propose an economic model of the nominal money balances and reserves in the Turkish economy during the period 1960‐1988. As most of the…

Abstract

The objective of this study is to propose an economic model of the nominal money balances and reserves in the Turkish economy during the period 1960‐1988. As most of the variables show unit root non‐stationarity, an approach based on the error correction system (Phillips, 1991) is adopted. The estimated parameters of the long‐run money balance relationship based on this error correction system are very close to the Johansen‐Juselius (1990) vector autoregressive modelling approach. An error correction system and the vector autoregressive modelling approaches are alternative representations of the cointegrated systems. This study empirically demonstrates the closeness of the two systems using the data from the Turkish monetary sector. The econometric estimates of the elasticities are plausible. In small samples, both approaches may not yield almost identical estimates since the theory underlying these approaches is asymptotic.

Details

Journal of Economic Studies, vol. 25 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

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Article
Publication date: 1 August 2019

Shibananda Nayak and Mirza Allim Baig

The purpose of this paper is to examine the likely determinants of the demand for official international reserves (hereafter reserves) for India and China in the long run…

Abstract

Purpose

The purpose of this paper is to examine the likely determinants of the demand for official international reserves (hereafter reserves) for India and China in the long run in a basic buffer stock model. The paper also examines the role of domestic money market disequilibrium in the short-run demand for official reserves for both the countries in a dynamic synthesis model.

Design/methodology/approach

The study used quarterly data for the time period 1993:Q1–2015:Q4. The long-run model is being estimated by following the Frenkel–Jovanovic (1981) buffer stock model and includes the determinants such as transaction motive variable (GDP or Imports), opportunity cost variable (domestic interest rate), precautionary motive variable (volatility of reserves) and exchange rate. The study also examined the role of domestic money market disequilibrium in addition to the above variables in the short-run reserve demand model. The money market disequilibrium term is expected to be negative and significant in the short run. The study employed autoregressive distributed lag bound testing approach to co-integration and unrestricted error-correction model (UECM) approach developed by Pesaran et al. (2001) for estimating the long-run and short-run models, respectively.

Findings

The co-integration test suggests the existence of long-run relationship between international reserves and its determinants. In the long run, all the variables are statistically significant with expected sign, except domestic interest rate variable for China. It is also found that, the money market disequilibrium term in the short run is negative and significant which validates that an excessive money demand (supply) induces an inflow (outflow) of international reserves for both India and China with a lag of four quarters. The recursive residual tests (CUSUM and CUSUMSQ) confirm the stability of both long-run and short-run reserve demand models.

Practical implications

The findings and policy implications of this study may be useful for the policy makers of the similar emerging economies for designing money and currency policies.

Originality/value

This paper is a comparative study which systematically analyzed the reserve demand behavior of the two emerging economies India and China. The study integrates the domestic money market with the international reserve demand behavior for these two economies.

Details

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

Keywords

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Article
Publication date: 18 May 2010

Hamid Baghestani and Bassam AbuAl‐Foul

This study aims to both test the asymmetric information hypothesis and explore the factors influencing the one‐ through four‐quarter‐ahead Federal Reserve inflation…

Abstract

Purpose

This study aims to both test the asymmetric information hypothesis and explore the factors influencing the one‐ through four‐quarter‐ahead Federal Reserve inflation forecasts for 1983‐2002.

Design/methodology/approach

Encompassing tests are used to examine the asymmetric information hypothesis. In modeling the Federal Reserve inflation forecasts, the authors are mindful of alternative theories of inflation which emphasize such determinants as cost‐push, demand‐pull and inertial factors.

Findings

First, the Federal Reserve inflation forecasts embody useful predictive information beyond that contained in the private forecasts. Second, with the private forecasts controlled for, the near‐term Federal Reserve inflation forecasts make use of qualitative information, and the longer‐term forecasts are influenced by the forecasts of growth in both unit labor costs and aggregate demand as well as the preceding‐quarter inflation forecasts and monetary policy shifts.

Research limitations/implications

The Federal Reserve forecasts are released to the public with a five‐year lag and are currently available up to the fourth quarter of 2002. This limits the use of the most up‐to‐date forecasts desirable for this study.

Originality/value

The factors influencing the Federal Reserve inflation forecasts are basically those emphasized publicly by monetary authorities. This finding points to the Fed's transparency and should thus help enhance its credibility with the public. Also, our results (which shed light on the predictive information in the Federal Reserve inflation forecasts not included in the private forecasts) are of value, since they can help the Fed better predict how inflation will respond to policy actions, and they can help the public form more informative inflationary expectations.

Details

Journal of Economic Studies, vol. 37 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

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Article
Publication date: 27 July 2012

Hamid Baghestani and Barry Poulson

This study is motivated by the view that Democrats are concerned with reducing unemployment in the short‐run, while Republicans are concerned with keeping inflation low to…

Abstract

Purpose

This study is motivated by the view that Democrats are concerned with reducing unemployment in the short‐run, while Republicans are concerned with keeping inflation low to promote economic stability and growth. The purpose of this paper is to ask whether the Federal Reserve forecasts of nonfarm payroll employment are accurate and free of systematic bias during the 1977‐2000 Democratic and Republican administrations.

Design/methodology/approach

The authors employ comparable forecasts from a univariate autoregressive integrated moving‐average (ARIMA) model to assess forecast accuracy. An ARIMA model efficiently utilizes past information and thus yields desirable forecasts commonly used as benchmarks.

Findings

Federal Reserve forecasts during the Democratic Administrations, while failing to outperform the ARIMA forecasts, display systematic under‐prediction. Such evidence is consistent with a discretionary approach to monetary policy when the bias is in the direction of full employment. During the Republican Administrations, the Federal Reserve forecasts, while superior to the ARIMA forecasts, are free of systematic bias. This, we argue, is consistent with a monetary policy that approximated the Taylor rule.

Research limitations/implications

The distinct behavior over the two administrations is unique to the nonfarm payroll employment forecasts and cannot be substantiated for the Federal Reserve forecasts of other macroeconomic variables.

Originality/value

This study provides new insights into the monetary policies pursued during the 1977‐2000 Democratic and Republican administrations. The findings are useful and informative for the design and implementation of monetary policy.

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Article
Publication date: 2 March 2021

Moch. Doddy Ariefianto, Irwan Trinugroho, Evan Lau and Bruno S. Sergi

This study aims to cover an important yet largely under-explored topic: the dynamic process of bank liquidity management in a vast developing economy by considering pool…

Abstract

Purpose

This study aims to cover an important yet largely under-explored topic: the dynamic process of bank liquidity management in a vast developing economy by considering pool of funds hypothesis, signaling hypothesis and risk management hypothesis.

Design/methodology/approach

The authors apply the dynamic common correlated effect (DCCE) method with an error correction model format to a long panel datasets of 84 Indonesian banks from January 2003 to August 2019, resulting in 16,800 observations.

Findings

The authors obtain convincing evidence of dynamic liquidity management with an error correction mechanism. The time needed to adjust to a liquidity shock ranges from 2.5 to 3.5 months. The empirical results strongly support the pool of funds and signaling hypotheses, whereas risk management motive appears to have secondary importance.

Practical implications

The regulator should also encourage banks to diversify liquidity management to include interbank money market and off-balance-sheet instruments. The current condition shows that bank liquidity management is strongly correlated with intermediation dynamics and thus is contracyclical. Banks could end up with tight liquidity in a booming economy, which would pose a severe risk to their financial standing.

Originality/value

To authors’ knowledge, this study is the first to analyze bank liquidity management behavior empirically using a panel error correction mechanism. Here, the authors also try to combine a practitioner perspective with a scientific one.

Details

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

Keywords

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Article
Publication date: 9 August 2013

Dorothea Diers, Martin Eling, Christian Kraus and Marc Linde

The purpose of this paper is to present a simulation‐based approach for modeling multi‐year non‐life insurance risk in internal risk models. Strategic management in an…

Abstract

Purpose

The purpose of this paper is to present a simulation‐based approach for modeling multi‐year non‐life insurance risk in internal risk models. Strategic management in an insurance company requires a multi‐year time horizon for economic decision making, for example, in the context of internal risk models. In the literature to date, only the ultimate perspective and, more recently, the one‐year perspective (for Solvency II purposes) are considered.

Design/methodology/approach

The authors present a way of defining and calculating multi‐year claims development results and extend the simulation‐based algorithm (“re‐reserving”) for quantifying one‐year non‐life insurance risk, presented in Ohlsson and Lauzeningks, to a multi‐year perspective.

Findings

The multi‐year algorithm is applied to the chain ladder reserving model framework of Mack (1993).

Practical implications

The usefulness of the new multi‐year horizon is illustrated in the context of internal risk models by means of a case study, where the multi‐year algorithm is applied to a claims development triangle based on Mack and on England and Verrall. This algorithm has been implemented in an excel tool, which is given as supplemented material.

Originality/value

To the best of the authors' knowledge, there are no model approaches or studies on insurance risk for projection periods of not just one, but several, new accident years; this requires a suitable extension of the classical Mack model; however, consideration of multiple years is crucial in the context of enterprise risk management.

Details

The Journal of Risk Finance, vol. 14 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

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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…

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

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