Tax and Nontax Incentives in Income Shifting: Evidence from Shadow Insurers

2019 ◽  
Vol 95 (4) ◽  
pp. 219-262 ◽  
Author(s):  
Bradford F. Hepfer ◽  
Jaron H. Wilde ◽  
Ryan J. Wilson
Keyword(s):  
Life Insurance ◽  
Capital Requirements ◽  
Dominant Factor ◽  
Income Shifting ◽  
Regulatory Capital ◽  
Tax Havens ◽  
Insurance Firms ◽  
Jobs Act ◽  
Insurance Tax ◽  
Liquid Asset Holdings

ABSTRACT Using the shadow insurance setting, we study the interplay between tax and nontax incentives in income shifting. Shadow insurance involves intercompany transactions designed to help firms meet regulatory capital requirements. However, prior to the Tax Cuts and Jobs Act of 2017 (TCJA), foreign-owned life insurance firms could save taxes by using shadow insurance to shift U.S. profits to tax havens. Consistent with expectations, we find that while nontax incentives appear to be the dominant factor behind firms' use of shadow insurance, tax considerations also played a role for certain firms. We also find that shadow insurance is associated with lower liquid asset holdings and increased credit risk. Overall, our results suggest that taxes were an important incentive for foreign-owned life insurance firms to use shadow insurance pre-TCJA. Moreover, in this setting, nontax considerations appeared to have motivated U.S.-owned firms' use of tax havens.

scholarly journals Systemic Risk and Insurance Regulation †

Risks ◽  
2018 ◽  
Vol 6 (3) ◽  
pp. 74 ◽  
Author(s):  
Fabiana Gómez ◽  
Jorge Ponce
Keyword(s):  
Systemic Risk ◽  
Formal Model ◽  
Public Support ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Insurance Companies ◽  
Prudential Regulation ◽  
High Exposure ◽  
Insurance Firms ◽  
Low Exposure

This paper provides a rationale for the macro-prudential regulation of insurance companies, where capital requirements increase in their contribution to systemic risk. In the absence of systemic risk, the formal model in this paper predicts that optimal regulation may be implemented by capital regulation (similar to that observed in practice, e.g., Solvency II ) and by actuarially fair technical reserve. However, these instruments are not sufficient when insurance companies are exposed to systemic risk: prudential regulation should also add a systemic component to capital requirements that is non-decreasing in the firm’s exposure to systemic risk. Implementing the optimal policy implies separating insurance firms into two categories according to their exposure to systemic risk: those with relatively low exposure should be eligible for bailouts, while those with high exposure should not benefit from public support if a systemic event occurs.

scholarly journals Credit Risk Management of Property Investments through Multi-Criteria Indicators

Risks ◽  
2021 ◽  
Vol 9 (6) ◽  
pp. 106
Author(s):  
Marco Locurcio ◽  
Francesco Tajani ◽  
Pierluigi Morano ◽  
Debora Anelli ◽  
Benedetto Manganelli
Keyword(s):  
Real Estate ◽  
Credit Risk ◽  
Risk Index ◽  
Capital Requirements ◽  
Basel Iii ◽  
Participatory Process ◽  
Regulatory Capital ◽  
The Real Estate ◽  
Financial Variables ◽  
Synthetic Index

The economic crisis of 2008 has highlighted the ineffectiveness of the banks in their disbursement of mortgages which caused the spread of Non-Performing Loans (NPLs) with underlying real estate. With the methods stated by the Basel III agreements, aimed at improving the capital requirements of banks and determining an adequate regulatory capital, the banks without the skills required have difficulties in applying the rigid weighting coefficients structures. The aim of the work is to identify a synthetic risk index through the participatory process, in order to support the restructuring debt operations to benefit smaller banks and small and medium-sized enterprises (SME), by analyzing the real estate credit risk. The proposed synthetic risk index aims at overcoming the complexity of Basel III methodologies through the implementation of three different multi-criteria techniques. In particular, the integration of objective financial variables with subjective expert judgments into a participatory process is not that common in the reference literature and brings its benefits for reaching more approved and shared results in the debt restructuring operations procedure. Moreover, the main findings derived by the application to a real case study have demonstrated how important it is for the credit manager to have an adequate synthetic index that could lead to the avoidance of risky scenarios where several modalities to repair the credit debt occur.

Are SME Loans Less Risky than Regulatory Capital Requirements Suggest?

2014 ◽  
Vol 23 (4) ◽  
pp. 89-103 ◽  
Author(s):  
Klaus Düllmann ◽  
Philipp Koziol
Keyword(s):  
Capital Requirements ◽  
Regulatory Capital

scholarly journals Does the intensity of prudential regulation affect banks? Evidence from the 2007-2009 crises.

2012 ◽  
Vol 1 (3) ◽  
pp. 14-26 ◽  
Author(s):  
Isabel Argimon ◽  
Gerard Arqué Castells ◽  
Francesc Rodríguez Tous
Keyword(s):  
Capital Requirements ◽  
Capital Regulation ◽  
Risk Sensitivity ◽  
The European Union ◽  
Regulatory Capital ◽  
European Banks ◽  
Observed Behaviour ◽  
The Right ◽  
Yearly Data ◽  
Do So

The main objective of this research is to gather empirical evidence on the effects of more or less stringency and more or less risk sensitivity in regulatory capital requirements on the observed behaviour of European banks during the initial years of the financial crisis. To do so, we use the indices built in Argimón and Ruiz (2010), which capture such characteristics of capital regulation. We test their incidence using changes in yearly data for individual banks for 25 countries of the European Union covering the period 2007-2009. Our results show that more stringency and risk sensitivity in capital regulation resulted in higher capital increases, with limited effect on risk taking. However, for well capitalized banks, higher risk sensitivity resulted in higher capital and higher risk, thus requiring striking the right balance, so as to lead to increased stability.

scholarly journals Co-evolution of Information-Processing Technology and Use: Interaction between the Life Insurance and Tabulating Industries

1993 ◽  
Vol 67 (1) ◽  
pp. 1-51 ◽  
Author(s):  
JoAnne Yates
Keyword(s):  
Twentieth Century ◽  
Information Processing ◽  
Life Insurance ◽  
Business Processes ◽  
Processing Technology ◽  
Insurance Firms

Punched-card tabulating equipment, an important commercial predecessor of the computer, was used for processing large amounts of data in many business firms during die first half of the twentieth century. Life insurance was an information-intensive business dependent on firms' abilities to manage large quantities of data. This article examines both the role that tabulating machinery played in shaping insurance firms' business processes and the simultaneous role that Ufe insurance as a user industry played in shaping the development of tabulating technology between 1890 and 1950. The ongoing interaction between the Ufe insurance and tabulating industries shaped both in significant ways, setting the stage for continued interaction between the two industries during the transition to computers beginning at mid-century.

Firm-specific internal determinants of profitability performance: an exploratory study of selected life insurance firms in Asia

2018 ◽  
Vol 12 (4) ◽  
pp. 533-550 ◽  
Author(s):  
Rozaimah Zainudin ◽  
Nurul Shahnaz Ahmad Mahdzan ◽  
Ee Shan Leong
Keyword(s):  
Financial Reporting ◽  
Life Insurance ◽  
Exploratory Study ◽  
Panel Study ◽  
Random Effect ◽  
Random Effect Model ◽  
Estimation Model ◽  
Content Type ◽  
Market Expansion ◽  
Insurance Firms

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.

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