Efficiency concept and investigations in insurance industry: A survey

Most recent studies are based on benchmarking analysis allowing the measure of company efficiency relatively to a reference performance. Benchmarking is a helpful tool to analyze and promote efficiency in insurance companies. The fast development of X-efficiency notion makes traditional performance measures (ROA, ROE, etc.) obsolete. Indeed, various methods have been used, various input-output measures have been proposed and various research fields have been explored in insurance company investigation. So, after reviewing most known efficiency concepts and their definitions, this section explores the literature review of two principal points of discussion: the first point is focused on the different used techniques to measure efficiency, including the developed approaches to define inputs, outputs and their prices. The second point represents an overview of efficiency investigations in insurance industry

Efficiency measurement. A methodological comparison of parametric and non-parametric approaches.

The thesis examines technical efficiency using frontier efficiency estimation techniques from parametric and non-parametric approaches. Five different frontier efficiency estimation techniques are considered which are SFA, DFA, DEA-CCR, DEA-BCC and DEA-RAM. These techniques are then used on an artificially generated panel dataset using a two-input two-output production function framework based on characteristics of German life-insurers. The key contribution of the thesis is firstly, a study that uses simulated panel dataset to estimate frontier efficiency techniques and secondly, a research framework that compares multiple frontier efficiency techniques across parametric and non-parametric approaches in the context of simulated panel data. The findings suggest that, as opposed to previous studies, parametric and non-parametric approaches can both generate comparable technical efficiency scores with simulated data. Moreover, techniques from parametric approaches, i.e. SFA and DFA are consistent with each other whereas the same applies to non-parametric approaches, i.e. DEA models. The research study also discusses some important theoretical and methodological implication of the findings and suggests some ways whereby future research can enable to overcome some of the restrictions associated with current approaches

Risk management and risk control for state-owned firms of China

As global economic integration deepens and enterprises scale up their business, the enterprise groups have become the mainstream of the company's development form. Subsidiaries of the Company have grown in size and increasingly diversified. Thus how does the parent Company control its subsidiaries effectively has become an urgent challenge, especially for the state-owned enterprises in China. This thesis studies the management and control of state-owned enterprises in China, carrying certain theoretical and practical significance. The research examined the theory and mechanism of management of SOEs, and evaluation on employee performance. It also analyzed performance evaluation, coordination and risk control strategies of SOEs' subsidiaries. The same studies were repeated on state-owned enterprise groups and extended to the strategies of risk management and risk control. The thesis first examined the conundrum of effective cooperation between subsidiaries of different departments and the parent company for efficient allocation of resources. To tackle this headache, the IAHP and DEA model were adopted to help group decision makers better measure the performance of employees and organizations. The thesis used the Balanced Scorecard (BSC) tool as the main principle and the combination of fuzzy mathematics and Delphi and entropy weight methods as the main methodology to assess the performance. In addition, a novel method of using multi-reasoning, multi-dimensional and dynamic factors was developed to assess the performance of SOE employees, and this method was proven to be effective. Moreover, the super-efficiency DEA model which takes into account work performance, work ability, work attitude, job potential and other factors in the evaluation on employee performance was developed and tested. Finally, risk map for SOEs was proposed and evaluated

Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?

Over the past several years, substantial research effort has gone into measuring the efficiency of financial institutions. Many studies have found that inefficiencies are quite large, on the order of 20% or more of total banking industry costs and about half of the industry's potential profits. There is no consensus on the sources of the differences in measured efficiency. This paper examines several possible sources, including differences in efficiency concept, measurement method, and a number of bank, market, and regulatory characteristics. We review the existing literature and provide new evidence using data on U.S. banks over the period 1990-95.Bank, efficiency, cost, profit

Inside the black box: what explains differences in the efficiencies of financial institutions?

Over the past several years, substantial research effort has gone into measuring the efficiency of financial institutions. Many studies have found that inefficiencies are quite large, on the order of 20 percent or more of total banking industry costs and about half of the industry's potential profits. There is no consensus on the sources of the differences in measured efficiency. This paper examines several possible sources, including differences in efficiency concepts, measurement method, and a number of bank, market, and regulatory characteristics. We review the existing literature and provide new evidency using data on U.S. banks over the period 1990-5.Banks and banking - Costs ; Financial institutions

DOES OWNERSHIP STRUCTURE MATTER? A COST EFFICIENCY STUDY OF LIFE INSURANCE FIRMS IN INDONESIA

This paper is about the cost and profit efficiency of Indonesia’s life insurance industry. Using data from 2010–2014, we compare cost and profit efficiency among local and joint venture insurers. Our empirical analysis, based on a time-invariant translog cost model, reveals mean cost allocation and profit efficiency scores of 0.36 and 0.52, respectively. Interestingly, we find that domestic insurers are more cost efficient compared to joint venture insurers; however, joint venture insurers maximize profit more.This paper is about the cost and profit efficiency of Indonesia’s life insurance industry. Using data from 2010–2014, we compare cost and profit efficiency among local and joint venture insurers. Our empirical analysis, based on a time-invariant translog cost model, reveals mean cost allocation and profit efficiency scores of 0.36 and 0.52, respectively. Interestingly, we find that domestic insurers are more cost efficient compared to joint venture insurers; however, joint venture insurers maximize profit more

Defined Adequacy: Developing a Standards-Based Framework for Evaluation of Municipalities and Municipal Services

The services of municipalities have been subject to the same methods of comparison in use in business in America and, in the absence of the clarity that profit brings to business, cities and towns compare services with dissimilar competitors. This research examines present methods of municipal service evaluation and available professional standards to determine if these standards would enhance existing measures with a comprehensive means of comparison. Through a review of public administration theory, the research discusses the role of bureaucrats in both the development of services and the standards established for comparison.Current methods of comparison of municipal services meet niche requirements but are not comprehensive nor do they offer the ability to serve as a “single indicator” for service comparisons. The addition of professional standards does create a powerful tool for effective cross-jurisdictional comparisons and service improvements. The use of professional standards calls for early engagement of bureaucrats and experts and a firm foundation in theory. Beyond simple participation, advocacy by the bureaucracy in the public policy process can exist under the control of legislators. Further, bureaucratic advocacy can play a critical role in providing competent comparisons on core services

Three Essays On Diversification Strategy, Diversification Performance, And Corporate Misconduct

The first essay investigates the relationship between diversification strategy and firm performance in the U.S. property-liability insurance industry. Prior literature has evaluated the effect of total diversification on insurer performance; however, there is an absence of evidence on the effect of diversification strategy for multi-line insurers. Theory suggests that related diversifiers should benefit from economies of scope while unrelated diversifiers should benefit from uncorrelated earnings streams. We test for the net effect of diversification strategy and find that relatedness negatively impacts accounting performance. However, we find that the relatedness penalty is confined to stock insurers while mutual insurers\u27 profitability appears to be unaffected by diversification strategy. Our article is the first to document the strategy-performance effect within U.S. property liability insurers. The second essay measures the impact government enforcement actions have on investor confidence by examining changes in market quality in the firms investigated by the Securities and Exchange Commission for fraud. The market quality measures we test include returns, price volatility, spreads, and Amihud\u27s (2002) illiquidity measure. We find that returns improve and price volatility reduces during an SEC investigation. However, spreads widen and illiquidity significantly increases after controlling for the known determinants of liquidity. Our work highlights some of the benefits and costs of having an active regulator of the US securities market. This article investigates the source of the diversification discount commonly found in the literature pertaining to corporate diversification (Berger and Ofek, 1995). Prior studies have had difficulty identifying the source of the discount due to data limitations from traditional sources. We use a sample of U.S. property casualty insurers with performance data (loss ratio) available at the segment-level, we are able to track the performance of existing segments before and after the firm acquires a new business line. This allows us to determine whether the discount is due to the underperformance of the newly acquired segments and/or if the addition of a new line actually affects the performance of the existing lines. We find evidence that diversifying firms underperform in the three years before the diversification event, and that the performance disparity between diversifying and non-diversifying firms dramatically widens in the post-diversification period. We document that the existing business segment\u27s loss ratios increase by 5.4% (worsens) in the year the firm diversifies, and remains consistently higher for the next 3 years. We also find that the new lines significantly outperform the existing business lines by an average margin of 6% in the post-diversification period. Our multivariate tests confirm these results. Therefore, we trace the source of the diversification discount to the declining performance in the existing business segments following the addition of a new line, supporting the notion that corporate diversification destroys value

How does the life insurance business perform and behave: the case of the UK industry

This thesis was submitted for the award of Doctor of Philosophy and was awarded by Brunel University LondonThis thesis reviews the UK life insurance industry comprehensively in terms of performance and business behaviour. One major contribution of the thesis is to challenge the conventional view on evaluation of investment funds from a shareholders’ perspective. The accounting valuation techniques to evaluate investment from the policyholder’s perspective have not been advanced to the same extent as methods designed to evaluate investment from the shareholder’s perspective, due partly to the accounting complexity of the investment management. Against this context, the thesis develops a valuation method on the basis that policyholders’ basic expectation that their saved funds shall be invested with value growth higher than inflation in the real goods market, and the thesis takes this as the benchmark to assess the reported value of policyholders’ assets. The thesis employs this valuation to assess the performance of different life assurance products (conventional vs. modern) and examine whether the transformation (from conventional to modern) has any impact on insurer performance and behaviour. The thesis also examines whether product diversification impacts realised and unrealised investment income homogenously; the result suggests that the effect of product diversification on performance varies across different measurements of realised and unrealised gain. The second major contribution of the thesis is to test the validity of different output proxies and compare efficiency scores based ranking for competitive firms to the value creation based ranking. Overall, the thesis suggests that different output proxies give consistently similar ranking for competitive firms, and cost efficiency based on different proxies are closely related to conventional measurers of firm performance and value creation in terms of value and ranking