Effect of Including Investment Income in Ratemaking upon Profitability of Non-Life Insurers

In the pre-reform era, Life Insurance Corporation of India (LICI) dominated the Indian life insurance market with a market share close to 100 percent. But the situation drastically changed since the enactment of the IRDA Act in 1999. At the end of the FY 2012-13, the market share of LICI stood at around 73 percent with the number of players having risen to 24 in the countrys life insurance sector. One of the reasons for such a decline in the market share of LICI during the post-reform period could be attributed to the increasing competition prevailing in the countrys life insurance sector. At the same time, the liberalization of the life insurance sector for private participation has eventually raised issues about ensuring sound financial performance and solvency of the life insurance companies besides protection of the interest of policyholders. The present study is an attempt to evaluate and compare the financial performances, solvency, and the market concentration of the four leading life insurers in India namely the Life Insurance Corporation of India (LICI), ICICI Prudential Life Insurance Company Limited (ICICI PruLife), HDFC Standard Life Insurance Company Limited (HDFC Standard), and SBI Life Insurance Company Limited (SBI Life), over a span of five successive FYs 2008-09 to 2012-13. In this regard, the CARAMELS model has been used to evaluate the performances of the selected life insurers, based on the Financial Soundness Indicators (FSIs) as published by IMF. In addition to this, the Solvency and the Market Concentration Analyses were also presented for the selected life insurers for the given period. The present study revealed the preexisting dominance of LICI even after 15 years since the privatization of the countrys life insurance sector.

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The Relative and Incremental Valuation Effects of Embedded Value Disclosure by Life Insurers: Evidence from Cross-Listed Firms in the U.S.

Accounting Horizons ◽

10.2308/acch-51015 ◽

2014 ◽

Vol 29 (2) ◽

pp. 327-339 ◽

Cited By ~ 1

Author(s):

Samir M. El-Gazzar ◽

Rudolph A. Jacob ◽

Scott P. McGregor

Keyword(s):

Empirical Studies ◽

Explanatory Power ◽

Accounting Standards ◽

Cash Flows ◽

Market Prices ◽

Joint Project ◽

Listed Firms ◽

Valuation Effects ◽

Life Insurers ◽

Embedded Value

SYNOPSIS European life insurers began disclosing embedded value information (EV) over a decade ago due to concerns with traditional local accounting standards. EV is an estimate of the present value of future net cash flows from in-force life insurance business. However, U.S.-based life insurers have yet to adopt this disclosure, although several surveys and empirical studies suggest that EV disclosure provides valuable information in assessing life insurers' performance. This paper examines the incremental valuation effects of EV disclosure in the presence of U.S. GAAP. We utilize a sample of cross-listed life insurers as surrogates to assess the valuation effects of EV disclosures for U.S. life insurers. Our empirical results show a higher association between EV and stock market prices than those of traditional accounting metrics such as earnings or book value. The results also show that EV has incremental explanatory power beyond those of traditional U.S. GAAP accounting measures. Our findings provide vital input to FASB and IASB as they currently engage in a joint project to develop uniform globally acceptable, comparable accounting standards for life insurers.

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Taxes as a Determinant of Managerial Compensation in Privately Held Insurance Companies

The Accounting Review ◽

10.2308/accr.2001.76.4.655 ◽

2001 ◽

Vol 76 (4) ◽

pp. 655-674 ◽

Cited By ~ 10

Author(s):

Bin Ke

Keyword(s):

Control Sample ◽

Tax Planning ◽

Managerial Compensation ◽

Insurance Companies ◽

Tax Rates ◽

Investment Income ◽

Federal Income Tax ◽

Planning Decision ◽

Privately Held Firms ◽

Privately Held

This study empirically investigates how taxes affect managerial compensation for a sample of privately held insurers whose managers own a large percentage of the firm's stock (I refer to these as management-owned insurers) during 1989–1996. Shareholder/managers receive two types of income from the firm they own: compensation income as employees, and investment income as shareholders. Although compensation income is taxable to employees and deductible by employers, investment income is subject to double taxation. Thus, the mix of the two is an important tax-planning decision for management-owned insurers. I predict and find that as individual tax rates increased relative to corporate tax rates from 1989–1992 to 1993–1996, shareholder/managers paid themselves less tax-deductible compensation relative to a control sample of nonmanagement-owned insurers (i.e., privately held insurers with no managerial ownership). The study's results expand our understanding of management-owned, privately held firms' tax-planning strategies, and have implications for the efficiency of the federal income tax system.

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Applications of Clustering with Mixed Type Data in Life Insurance

Risks ◽

10.3390/risks9030047 ◽

2021 ◽

Vol 9 (3) ◽

pp. 47

Author(s):

Shuang Yin ◽

Guojun Gan ◽

Emiliano A. Valdez ◽

Jeyaraj Vadiveloo

Keyword(s):

Life Insurance ◽

Clustering Algorithm ◽

Early Stage ◽

Financial Statements ◽

Life Insurers ◽

Insurance Portfolio ◽

Policy Information ◽

Spatial Attributes ◽

Type Data ◽

Significant Mortality

Death benefits are generally the largest cash flow items that affect the financial statements of life insurers; some may still not have a systematic process to track and monitor death claims. In this article, we explore data clustering to examine and understand how actual death claims differ from what is expected—an early stage of developing a monitoring system crucial for risk management. We extended the k-prototype clustering algorithm to draw inferences from a life insurance dataset using only the insured’s characteristics and policy information without regard to known mortality. This clustering has the feature of efficiently handling categorical, numerical, and spatial attributes. Using gap statistics, the optimal clusters obtained from the algorithm are then used to compare actual to expected death claims experience of the life insurance portfolio. Our empirical data contained observations of approximately 1.14 million policies with a total insured amount of over 650 billion dollars. For this portfolio, the algorithm produced three natural clusters, with each cluster having lower actual to expected death claims but with differing variability. The analytical results provide management a process to identify policyholders’ attributes that dominate significant mortality deviations, and thereby enhance decision making for taking necessary actions.

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Economies of scale in European life insurance

The Journal of Risk Finance ◽

10.1108/jrf-03-2017-0055 ◽

2018 ◽

Vol 19 (2) ◽

pp. 190-207 ◽

Cited By ~ 1

Author(s):

Udo Klotzki ◽

Alexander Bohnert ◽

Nadine Gatzert ◽

Ulrike Vogelgesang

Keyword(s):

Life Insurance ◽

Fixed Effects ◽

Economies Of Scale ◽

Insurance Markets ◽

Fixed Effects Model ◽

Content Type ◽

Administrative Costs ◽

Life Insurers ◽

Acquisition Costs ◽

The Uk

Purpose Due to the continuing low interest rate environment as well as the increase in acquisition costs, price transparency, cost transparency and competition with banks, the cost of life insurance becomes increasingly important for customers, insurers and shareholders. Against this background, the purpose of this paper is to study the development of insurers’ economies of scale in regard to administrative costs for four of the largest European life insurance markets. Design/methodology/approach The analysis on economies of scale is based on a comprehensive set of 477 life insurers in Germany, Italy, Spain and the UK, yearly data between 2000 and 2014, and regression calculations that are based on 4,855 observations. Findings The results show that economies of scale exist for all considered markets and for most of the considered years. However, the extent of economies of scale varies considerably across countries. Originality/value Overall, the existing academic literature on costs and corresponding economies of scale in life insurance primarily deals with analyses of total costs instead of administrative costs, a single year or a single market. This paper contributes to the existing literature by conducting an analysis of recent market dynamics and economies of scale in regard to administrative costs for the period from 2000 and 2014 for four of the largest European life insurance markets for which the respective data were available (Germany, Italy, Spain and the UK) and 477 life insurers in total. This is done by means of a log-log transformation of premiums and costs and a fixed effects model based on these transformed figures for 4,855 observations. In addition, for each market, the authors analyze the development of administrative costs for a total of 477 insurers.

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Currency Uncertainty, Interest Guarantee, and Risk-Based Premiums in Life Insurance Guaranty Schemes

Asia-Pacific Journal of Risk and Insurance ◽

10.1515/apjri-2019-0035 ◽

2020 ◽

Vol 14 (2) ◽

Author(s):

Shih-Chieh Bill Chang ◽

Yen-Kuan Lee

Keyword(s):

Yield Enhancement ◽

Closed Form Solutions ◽

Regulatory Policies ◽

Life Insurers ◽

Put Option ◽

Asset Portfolio ◽

Early Closure ◽

Currency Mismatches ◽

The Cost ◽

Regulatory Forbearance

AbstractThis paper investigates risk-based premiums in ex-ante insurance guaranty schemes. Exchange rate risk is incorporated into the asset portfolio to reflect the growing practice of life insurers taking offshore risks for yield enhancement. The closed-form solutions of the risk-based premium charged by the insurance guaranty fund are derived. Our premium rating includes currency mismatches between assets and liabilities, and the effects of early closure, capital forbearance, and grace periods are fully explored. First, we discover that the insurance guaranty fund premium is underestimated if currency fluctuation uncertainty is overlooked. Second, the premium is higher under regulatory forbearance than it is under the Merton stock put option, which implies that the cost is substantial. Finally, we note that the premium increases with higher financial leverage and greater foreign exposure in the asset portfolio. The results of our analysis provide further insight for regulators to implement regulatory policies and insurance guaranty schemes.

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