nsolvency Experience, Risk-Based Capital, and Prompt Corrective Action in Property-Liability Insurance

In December 1992, the National Association of Insurance Commissioners (NAIC) adopted a life-health insurer risk-based capital (RBC) formula and model law that became effective with the 1993 annual statement filed in March 1994. In principle, well-designed RBC requirements can help achieve an efficient reduction in the expected costs of insolvencies. They can provide incentives for insurers to operate safely in cases where market incentives are weak due to government mandated guarantees of insurer obligations or asymmetries regarding solvency between insurers and buyers. RBC requirements also may facilitate or encourage prompt corrective action by solvency regulators by helping regulators to identify weak insurers and giving regulators legal authority to intervene when capital falls below specified levels. RBC requirements may force regulators to act in amore timely manner when confronted with external pressure to delay action. However, RBC capital requirements have a number ofpotential limitations. Unavoidable imperfections in any meaningful RBC system will likely distort some insurer decisions in undesirable and unintended ways. RBC requirements by themselves will do little or nothing to help regulators determine when an insurer s reported capital (surplus) is overstated due to understatement of liabilities or overstatement of assets. A well-designed RBC system should minimize costs associated with misclassification of insurers. The system should be able to identify a high proportion of troubled companies early enough to permit regulators to take prompt corrective action and should identify as troubled only a minimal proportion of financially sound insurers. This study analyzes data on solvent and insolvent property-liability insurers to determine whether modifications in the NAIC s RBC formula can improve its ability to predict firms that subsequently fail without substantially increasing the proportion of surviving insurers that are incorrectly predicted to fail. It uses logistic regression models to investigate whether changes in the weight for the major components in the RBC formula and incorporation of information on company size and organizational form improve the tradeoff between Type I error rates (the percentage of insurers that later failed that are incorrectly predicted not to fail) and the Type II error rates (the percentage of surviving insurers that are incorrectly predicted to fail). The data analyzed were for 1989-91 for firms that subsequently failed and for firms that survived through the first nine months of 1993. The authors make four main conclusions. First, less than half of the companies that later failed had RBC ratios within the proposed ranges for regulatory and company action. Second, total and component RBC ratios generally are significantly different for failed and surviving firms based on univariate tests. Third, estimation of multiple logistic regression models of insolvency risk indicated that allowing the weights of the RBC component to vary and including firm size and organizational form variables generally produce a material improvement in the tradeoff between sample Type I and Type II error rates. And, fourth,the RBC models are noticeably less successful in predicting large firm insolvencies than in predicting smaller insolvencies. Regarding the estimated weights in the logistic regression models, a major conclusion is the reserve component of the NAIC risk-based capital formula, which accounts for half of industry risk-based capital, has virtually no predictive power in any of the tests conducted. Given the high costs associated with large failures and the inferior performance of the models in predicting large insolvencies, a higher payoff in terms of reduced insolvency costs is likely to be achieved by developing models that perform better for large firms.

The Costs and Benefits of Reinsurance

Purchasing reinsurance reduces insurers’ insolvency risk by stabilizing loss experience, increasing capacity, limiting liability on specific risks, and/or protecting against catastrophes. Consequently, reinsurance purchase should reduce capital costs. However, transferring risk to reinsurers is expensive. The cost of reinsurance for an insurer can be much larger than the actuarial price of the risk transferred. In this article, we analyze empirically the costs and the benefits of reinsurance for a sample of U.S. property-liability insurers. The results show that reinsurance purchase increases significantly the insurers’ costs but reduces significantly the volatility of the loss ratio. With purchasing reinsurance, insurers accept to pay higher costs of insurance production to reduce their underwriting risk.reinsurance, insolvency risk, risk management, financial intermediation, cost functions, panel data.

Efficiency of Insurance Firms with Endogenous Risk Management and Financial Intermediation Activities

Risk management is now present in many economic sectors. This paper investigates the role of risk management in creating value for financial institutions by analyzing U.S. property-liability insurers. Property-liability insurers are financial intermediaries whose primary roles in the economy are risk pooling and risk bearing. The risk pooling and risk bearing functions performed by insurers are the primary determinants of the need for risk management. The main goal of this paper is to test how risk management and financial intermediation activities create value for insurers by enhancing economic efficiency. Insurer cost efficiency is measured relative to an econometric cost function. Since the prices of risk management and financial intermediation services are not observable, we consider these two activities as intermediate outputs and estimate their shadow prices. The shadow prices isolate the contributions of risk management and financial intermediation to insurer cost efficiency. The econometric results show that both activities significantly increase the efficiency of the property-liability insurance industry.Risk management, US property-liability insurer, risk pooling, financial intermediation, economic efficiency, intermediate output, shadow price, cost function, translog approximation

Efficiency of Insurance Firms with Endogenous Risk Management and Financial Intermediation Activities

Risk management is now present in many economic sectors. This paper investigates the role of risk management in creating value for financial institutions by analyzing U.S. property-liability insurers. Property-liability insurers are financial intermediaries whose primary role in the economy is risk pooling and risk bearing. The risk pooling and risk bearing functions performed by insurers are the primary determinants of the need for risk management. The main goal of this paper is to test how risk management and financial intermediation activities create value for insurers by enhancing economic efficiency. Insurer cost efficiency is measured relative to an econometric cost frontier. Since the prices of risk management and financial intermediation services are not observable, we consider these two activities as intermediate outputs and estimate their shadow prices. The shadow prices isolate the contributions of risk management and financial intermediation to insurer cost efficiency. The econometric results show that both activities significantly increase the efficiency of the property-liability insurance industry.

Efficiency of Insurance Firms with Endogenous Risk Management and Financial Intermediation Activities

Risk management is now present in many economic sectors. This paper investigates the role of risk management in creating value for financial institutions by analyzing U.S. property-liability insurers. Property-liability insurers are financial intermediaries whose primary roles in the economy are risk pooling and risk bearing. The risk pooling ad risk bearing functions performed by insurers are the primary determinants of the need for risk management. The main goal of this paper is to test how risk management and financial intermediation activities create value for insurers by enhancing economic efficiency. Insurer cost efficiency is measured relative to an econometric cost function. Since the prices of risk management and financial intermediation services are not observable, we consider these two activities as intermediate outputs and estimates their shadow prices. The shadow prices isolate the contributions of risk management and financial intermediation to insurer cost efficiency. The econometric results show that both activities significantly increase the efficiency of the property-liability insurance industry

Rationalizing the Different Products in the Reaction of N\u3csub\u3e2\u3c/sub\u3e with Three-coordinate MoL\u3csub\u3e3\u3c/sub\u3e Complexes

The reaction of N2 with three-coordinate MoL3 complexes is known to give rise to different products, N–MoL3, L3Mo–N–MoL3 or Mo2L6, depending on the nature of the ligand L. The energetics of the different reaction pathways are compared for L = NH2, NMe2, N(iPr)Ar and N(tBu)Ar (Ar = 3,5-C6H3Me2) using density functional methods in order to rationalize the experimental results. Overall, the exothermicity of each reaction pathway decreases as the ligand size increases, largely due to the increased steric crowding in the products compared to reactants. In the absence of steric strain, the formation of the metal–metal bonded dimer, Mo2L6, is the most exothermic pathway but this reaction shows the greatest sensitivity to ligand size varying from significantly exothermic, −403 kJ mol−1 for L = NMe2, to endothermic, +78 kJ mol−1 for L = N(tBu)Ar. For all four ligands, formation of N–MoL3via cleavage of the N2 bridged dimer intermediate, L3Mo–N–N–MoL3, is strongly exothermic. However, in the presence of excess reactant MoL3, formation of the single atom-bridged complex L3Mo–N–MoL3 from N–MoL3 + MoL3 is both thermodynamically and kinetically favoured for L = NMe2 and N(iPr)Ar, in agreement with experiment. In the case of L = N(tBu)Ar, the greater steric bulk of the tBu group results in a much less exothermic reaction and a calculated barrier of 66 kJ mol−1 to formation of the L3Mo–N–MoL3 dimer. Consequently, for this ligand, the energetically and kinetically favoured product, consistent with the experimental data, is the nitride complex L3Mo–N

Volunteering and well-being : do self-esteem, optimism, and perceived control mediate the relationship?

Volunteers play a vital role in modern societies by boosting the labor force within both the public and private sectors. While the factors that may lead people to volunteer have been investigated in a number of studies, the means by which volunteering contributes to the well-being of such volunteers is poorly understood. It has been suggested through studies that focus on the absence of depression in volunteers that self-esteem and sense of control may be major determinants of the increased well-being reported by volunteers. This is consistent with the homeostatic model of subjective well-being, which proposes that self-esteem, optimism, and perceived control act as buffers that mediate the relationship between environmental experience and subjective well-being (SWB). Using personal well-being as a more positive measure of well-being than absence of depression, this study further explored the possible mediating role of self-esteem, optimism, and perceived control in the relationship between volunteer status and well-being. Participants (N = 1,219) completed a 97-item survey as part of the Australian Unity Wellbeing project. Variables measured included personal well-being, self-esteem, optimism, and a number of personality and psychological adjustment factors. Analyses revealed that perceived control and optimism, but not self-esteem, mediated the relationship between volunteer status and personal well-being.<br /

The management of subjective quality of life by short-stay hospital patients: An exploratory study

BACKGROUND: This study tested the homeostatic model of subjective quality of life in a group of 47 short stay patients as they progressed through the stages of hospitalization for surgery. METHOD: Participants completed a questionnaire measuring subjective quality of life, positive and negative affect, self-esteem, optimism and cognitive flexibility, the day prior to admission (T1), two days post-operation (T2) and one week after discharge (T3). Neuroticism and Extroversion were measured at Time 1. RESULTS: All variables remained stable across the three times, apart from positive affect, which dropped significantly post-operation but returned to its previous level post discharge. CONCLUSION: Although the homeostatic model of subjective quality of life was supported at Time 1, the analyses raise doubts about the stability of personality. This finding is consistent with recent discussions of personality

Relationships Between Long-Range Lightning Networks and TRMM/LIS Observations

Recent advances in long-range lightning detection technologies have improved our understanding of thunderstorm evolution in the data sparse oceanic regions. Although the expansion and improvement of long-range lightning datasets have increased their applicability, these applications (e.g., data assimilation, atmospheric chemistry, and aviation weather hazards) require knowledge of the network detection capabilities. The present study intercompares long-range lightning data with observations from the Lightning Imaging Sensor (LIS) aboard the Tropical Rainfall Measurement Mission (TRMM) satellite. The study examines network detection efficiency and location accuracy relative to LIS observations, describes spatial variability in these performance metrics, and documents the characteristics of LIS flashes that are detected by the long-range networks. Improved knowledge of relationships between these datasets will allow researchers, algorithm developers, and operational users to better prepare for the spatial and temporal coverage of the upcoming GOES-R Geostationary Lightning Mapper (GLM)

Examination of thromboxane synthase as a prognostic factor and therapeutic target in non-small cell lung cancer

Background: Thromboxane synthase (TXS) metabolises prostaglandin H2 into thromboxanes, which are biologically active on cancer cells. TXS over-expression has been reported in a range of cancers, and associated with a poor prognosis. TXS inhibition induces cell death in-vitro, providing a rationale for therapeutic intervention. We aimed to determine the expression profile of TXS in NSCLC and if it is prognostic and/or a survival factor in the disease. Methods: TXS expression was examined in human NSCLC and matched controls by western analysis and IHC. TXS metabolite (TXB 2) levels were measured by EIA. A 204-patient NSCLC TMA was stained for COX-2 and downstream TXS expression. TXS tissue expression was correlated with clinical parameters, including overall survival. Cell proliferation/survival and invasion was examined in NSCLC cells following both selective TXS inhibition and stable TXS over-expression. Results: TXS was over-expressed in human NSCLC samples, relative to matched normal controls. TXS and TXB 2levels were increased in protein (p < 0.05) and plasma (p < 0.01) NSCLC samples respectively. TXS tissue expression was higher in adenocarcinoma (p < 0.001) and female patients (p < 0.05). No significant correlation with patient survival was observed. Selective TXS inhibition significantly reduced tumour cell growth and increased apoptosis, while TXS over-expression stimulated cell proliferation and invasiveness, and was protective against apoptosis. Conclusion: TXS is over-expressed in NSCLC, particularly in the adenocarcinoma subtype. Inhibition of this enzyme inhibits proliferation and induces apoptosis. Targeting thromboxane synthase alone, or in combination with conventional chemotherapy is a potential therapeutic strategy for NSCLC. © 2011 Cathcart et al; licensee BioMed Central Ltd