The purpose of this paper is to provide an overview on frontier efficiency measurement in the insurance industry, a topic of great interest in the academic literature during the last several years. We provide a comprehensive survey of 95 studies with a special emphasis on innovations and recent developments. We review different econometric and mathematical programming approaches to efficiency measurement in insurance and discuss the choice of input and output factors. Furthermore, we categorise the 95 studies into 10 different areas of application and discuss selected results. While there is a broad consensus with regard to the choice of methodology and input factors, our review reveals large differences in output measurement. Significant need for future research can be identified, for example, with regard to analysis of organisational forms, market structure and risk management, especially in the international context.
The purpose of this paper is to provide new empirical evidence on frontier efficiency measurement in the international insurance industry, a topic of great interest in the academic literature during the last several years. A broad efficiency comparison of 6462 insurers from 36 countries is conducted. Different methodologies, countries, organizational forms, and company sizes are compared, considering life and non-life insurers. We find a steady technical and cost efficiency growth in international insurance markets from 2002 to 2006, with large differences across countries. Denmark and Japan have the highest average efficiency, whereas the Philippines is the least efficient. Regarding organizational form, the results are not consistent with the expense preference hypothesis, which claims that mutuals should be less efficient than stocks due to higher agency costs. Only minor variations are found when comparing different frontier efficiency methodologies (data envelopment analysis, stochastic frontier analysis).
Für eine erfolgreiche wertorientierte Steuerung innerhalb einer Versicherungsgruppe ist eine Einheitlichkeit und Überleitbarkeit von MCEV, Solvency II und IFRS von zentraler Bedeutung - allein, um den damit verbundenen Aufwand auf ein sinnvolles Mass zu begrenzen. Widersprüchliche Aussagen der verschiedenen Prinzipien können problematisch sein, wenn das Management die Signale in ihre Entscheidungsfindung einbinden möchte.
The purpose of this paper is to review research on lapse in life insurance and to outline potential new areas of research in this field. Design/methodology/approach - The authors consider theoretical lapse rate models as well as empirical research on life insurance lapse and provide a classification of these two streams of research. More than 50 theoretical and empirical papers from this important field of research are reviewed. Challenges for lapse rate modeling, lapse risk mitigation techniques, and possible trends in future lapse behavior are discussed. Findings - Lapse rate modeling has been a very active field of research in the last years, as evidenced by the 44 papers on lapse modeling considered in this review. Moreover, a fair amount of empirical work (another 12 papers) has been done, especially on the issue of how environmental variables affect lapse. Research on individual policyholder and contract information is more scarce, since such information is typically treated as confidential. Practical implications - The risks arising from lapse are of high economic importance. Lapsation is thus of interest not only to academics, but is highly relevant for the industry, regulators, and policymakers, especially in regard to designing an appropriate regulatory environment. Lapsation also impacts many actuarial tasks, such as product design, pricing, hedging, and risk management. A review of the recent literature might be helpful for these tasks. Originality/value - To the best of the authors' knowledge, this is the first structured review of the increasingly important literature on life insurance lapsation. Next to the structured review of the existing models and the empirical evidence, the paper also contributes to the literature by discussing challenges for lapse rate modeling and possible trends.
With the largest data set ever used for this purpose (covering more than 1 million contracts), we analyze the impact of product and policyholder characteristics on lapse in the life insurance market. The data are provided by a German life insurer and cover two periods of market turmoil that we incorporate into our proportional hazards and generalized linear models. The results show that product characteristics such as product type or contract age and policyholder characteristics such as age or gender are important drivers for lapse rates. Our findings improve the understanding of lapse drivers and might be used by insurance managers and regulators for value- and risk-based management.
The aim of this paper is to analyze whether the level of surplus participation affects customer demand. We use multivariate linear regression models and data on surplus participation, new business, and lapse for the German life insurance market from 1998 to 2008. We find a significant positive dependence between surplus participation and new business growth as well as a significant negative dependence between surplus participation and growth of lapse volume. Overall, these findings indicate that customers do react to changes in product characteristics, which might be seen as indicative of market discipline. Our results are important for insurance company managers, regulators, and boards of insurance associations.
Use of short selling and derivatives is limited in most emerging markets because such instruments are not as readily available as they are in developed capital markets. These limitations raise questions about the value added provided by hedge funds, especially compared to traditional mutual funds active in these markets. We use five existing performance measurement models plus a new asset-style factor model to identify the return sources and the alpha generated by both types of funds. We analyze subperiods, different market environments, and structural breaks. Our results indicate that some hedge funds generate significant positive alpha, whereas most mutual funds do not outperform traditional benchmarks. We find that hedge funds are more active in shifting their asset allocation. The higher degree of freedom that hedge funds enjoy in their investment style might thus be one explanation for the differences in performance.
