Research Article
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Year 2023, , 121 - 136, 30.09.2023
https://doi.org/10.17261/Pressacademia.2023.1811

Abstract

References

  • Al-Amri, K., Cummins, J. D. and Weiss, M. A., (2014). Economies of Scope, Organizational Form, and Insolvency Risk: Evidence from the Takaful Insurance Industry (Fox School of Business Research Paper, #15-050). Philadelphia, PA: Temple University.
  • Alhassan, A. L. and Addisson, G. K., (2013). Market Structure, Efficiency and Performance: Empirical Evidence from the Ghanaian Life Insurance Market. First University of Ghana Business School Conference and Development in Africa, April 8-9, 2013, Accra, Ghana.
  • Alhassan, A. L., Addisson, G. K. and Asamoah, M. E., (2015). Market structure, efficiency and profitability of insurance companies in Ghana. International Journal of Emerging Markets, (10)4, 648 – 669.
  • A. M. Best, (2022). Best’s Review: Best’s Rankings, World’s Largest Insurance Companies - 2022 Edition. A.M. Best Company, Incorporated: Oldwick, NJ.
  • Bauer, P. W., Berger, A. N., Ferrier, G. D. & Humphrey, D. B. (1998). Consistency conditions for regulatory analysis of financial ınstitutions: a comparison of frontier efficiency methods. Journal of Economics and Business, 50, 85–114
  • Berger, A. N. & Humphrey, D. B. (1991). The dominance of inefficiencies over scale and product mix economies in banking. Journal of Monetary Economics, 28, 117-148
  • Berger, A. N., and Mester, L. J., (1997). Inside the black box: What explains differences in the efficiencies of financial institutions? Journal of Banking & Finance, 21(7), 895-947.
  • Bernier, G. & Sedzro, K., (2003). An Intertemporal Analysis of Efficiency Using DEA: The Case of the Canadian Life Insurance Industry Prior to 2000. Paper presented at the American Risk and Insurance Association 2003 Annual Meeting, Denver, CO held August 10-13.
  • Biener, C., & Eling, M. (2012). Organization and efficiency in the international insurance industry: A cross-frontier analysis. European Journal of Operational Research, 221(2), 454-468.
  • Biener, C., Eling, M. and Wirfs, J. H., (2014). The Determinants of Efficiency and Productivity in the Swiss Insurance Industry. 41st Seminar of the European Group of Risk and Insurance Economists, September 15 - 17, 2014, St. Gallen, Switzerland.
  • Camino-Mogro and Bermúdez-Barrezueta, N., (2019). Determinants of profitability of life and non-life insurance companies: evidence from Ecuador. International Journal of Emerging Markets, 14(5), 831-872.
  • Canadian Life and Health Insurance Association, (2022). Canadian Life & Health Insurance Facts 2022 Edition. Toronto, ON.
  • Carr, P. S. (2004). The Practice of Life Insurance in Australia. Sydney, NSW: Institute of Actuaries of Australia.
  • Charnes, A., Cooper, W. W. & Rhodes, E. (1978). Measuring the efficiency of decision making units. European Journal of Operational Research, 2, 429-444.
  • Cooper, W. W., Li, S., Seiford, L. M., Thrall, R. M. & Zhu, J. (2001). Sensitivity and stability analysis in DEA: Some recent developments. Journal of Productivity Analysis, 15, 217-246.
  • Cummins, J. D. & Weiss, M. A. (2000). Analyzing Firm Performance in the Insurance Industry Using Frontier Efficiency and Productivity Methods. In H. G. Dionne, (Ed.), Handbook of Insurance (pp. 767-829). Norwell (suburb of the Boston-Worcester-Providence CSA), MA: Kluwer Academic Publishers.
  • Das U. S., Davies N. and Podpiera, R., (2003). Insurance and Issues in Financial Soundness. IMF Working Paper WP/03/138, International Monetary Fund, July 2003, Washington, DC.
  • De Luca Cardillo, D. & Fortuna, T. (2000). A DEA model for the efficiency evaluation of nondominated paths on a road network. European Journal of Operational Research, 121, 549-558.
  • Donni, O. & Fecher, F. (1997). Efficiency and Productivity of the Insurance Industry in the OECD Countries. The Geneva Papers on Risk and Insurance-Issues & Practice, 22(4), 523-535.
  • Dyson, R. G., Allen, R., Camanho, A. S., Podinovski, V. V., Sarrico, C. S. and Shale, E. A., (2001). Pitfalls and protocols in DEA. European Journal of Operational Research, 132(2), 245-259.
  • Eling, M. and Jia, R., (2019). Efficiency and profitability in the global insurance industry. Pacific-Basin Finance Journal, 57, 327-341.
  • Eling, M. & Luhnen, M. (2010). Efficiency in the international insurance industry: A cross-country comparison. Journal of Banking & Finance, 34(7), 1497-1509.
  • Gaganis, C., Hasan, I. & Pasiouras, F. (2013). Efficiency and stock returns: evidence from the insurance industry. Journal of Productivity Analysis, 40(3), 429-442.
  • Golden L. L. and Yang C. C., (2019). Efficiency Analysis of Health Insurers’ Scale of Operations and Group Affiliation with a Perspective Toward Health Insurers’ Mergers and Acquisitions Effects. North American Actuarial Journal, 23(4), 626-645.
  • Greene, W. H. and Segal, D., (2004). Profitability and Efficiency in the U.S. Life Insurance Industry. Journal of Productivity Analysis, 21(3), 229-247.
  • Humphrey, D. B. & Pulley, L. B. (1997). Banks’ responses to deregulation: profits, technology and efficiency. Journal of Money, Credit and Banking, 29, 73-93.
  • Infinite Market Cap, (2023). Largest insurance companies by market cap. https://companiesmarketcap.com/insurance/largest-insurance-companies-by-market-cap/ [Date Accessed: June 15, 2023].
  • Jaloudi, M. and Bakir, A., (2019). Market structure, efficiency, and performance of jordan ınsurance market. International Journal of Business and Economics Research, 8(1), 6-13.
  • Jiang C-F. and Chen S., (2015). Study on correlation among life ınsurance market structure, efficiency and performance. China Soft Science, 2015(2), 74-84.
  • Karim, M. Z. A. & Jhantasana, C., (2005). Cost efficiency and profitability in thailand’s life ınsurance ındustry: a stochastic cost frontier approach. International Journal of Applied Econometrics and Quantitative Studies, 2(4), 19-36.
  • Kellner, S. & Mathewson, G. F. (1983). Entry, size distribution, scale, and scope economies in the life ınsurance ındustry. The Journal of Business, 56(1), 25-44.
  • Kumbhakar, S. C. and Lovell, C. A. K., (2000). Stochastic Frontier Analysis. Cambridge, UK: Cambridge University Press.
  • Liu, B., (2007). Empirical research of the market structure, efficiency and performance of life ınsurance ındustry in China. Industrial Economics Research, 2007(04), 19-26.
  • Paradi, J. C. (2002). Profit Efficiency - Health Insurance. In N. K. Avkiran, (Ed.), Productivity Analysis in the Service Sector: with Data Envelope Analysis. Camira (suburb of Brisbane), Qld: N. K. Avkiran.
  • Parida, T. K. and Debashis A., (2017). The Life Insurance Industry in India. New York, NY: Palgrave Macmillan.
  • Sun, W. & Zhong, C. (2011). Cost X-efficiency in China’s insurance companies: A stochastic frontier approach. African Journal of Business Management, 5, 11916-11924
  • Swiss Reinsurance Company Limited, (2022). World Insurance: inflation risks front and centre, Sigma 4/2022. Zurich Switzerland.
  • Tuffour, J. K., Ofori-Boateng, K., Ohemeng, W. and Jane Kabukuor Akuaku, J. K., (2021). Life ınsurance companies: determinants of cost efficiency and profitability. Journal of Accounting, Business and Management, 28(2), 1-19.
  • United States Agency International Development, (2006). Assessment on How Strengthening the Insurance Industry in Developing Countries Contributes to Economic Growth. Washington, DC.
  • Wang, H-J. and Schmidt, P., (2002). One-step and two-step estimation of the effects of exogenous variables on technical efficiency levels. Journal of Productivity Analysis, 18, 129-144.
  • Ward, D. R., (2002). The costs of distribution in the UK life insurance market. Applied Economics, 34(15), 1959-1968.
  • Wise, W., (2017). A survey of life insurance efficiency papers: Methods, pros & cons, trends. Accounting, 3(3), 137-170.
  • Wise, W., (2018). The importance of efficiency for life insurer profit: A study of Canadian life insurance companies. Theoretical and Applied Economics, (25)4, 179-204.
  • Wu, D., Yang, Z., Vela, S. & Liang, L. (2007). Simultaneous analysis of production and investment performance of Canadian life and health insurance companies using data envelopment analysis. Computers & Operations Research, 34(1), 180-198.
  • Yang, Z. (2006). A two-stage DEA model to evaluate the overall performance of Canadian life and health insurance companies. Mathematical and Computer Modelling, 43(7-8), 910–919.
  • Zanghieri, P., (2009). Efficiency of European Insurance Companies: Do Local Factors Matter? (Research Department, Association of Italian Insurers (ANIA), Working Paper). Rome, Italy: ANIA. DOI:10.2139/ssrn.1354108.

THE IMPORTANCE OF EFFICIENCY FOR LIFE INSURER PROFIT REGARDING CANADIAN LIFE INSURERS

Year 2023, , 121 - 136, 30.09.2023
https://doi.org/10.17261/Pressacademia.2023.1811

Abstract

Purpose- This study examines 1) how the efficiency of life insurers influences their profits, 2) the influence of exogenous variables such as debt ratio on profits and 3) the critical phenomenon of how feasible it is for a life company to improve its profits via efficiency improvements versus changing other characteristics of its business.
Methodology- This study uses stochastic frontier analysis along with data from Canadian life insurers to calculate the required efficiency values along with the above effects and possibilitie
Findings- The results are that it is much easier for life insurers to increase profit via efficiency improvements versus improving other business aspects that it can control such as debt ratio or percent of new business written.
Conclusion- The results point to the key conclusion that to increase profit, or regain the profit lost due to inefficiency, for the most part and conceivably totally the best, easiest and quite possibly only way for life insurance companies to influence their profit is through improving their efficiency, especially in the vital long-term

References

  • Al-Amri, K., Cummins, J. D. and Weiss, M. A., (2014). Economies of Scope, Organizational Form, and Insolvency Risk: Evidence from the Takaful Insurance Industry (Fox School of Business Research Paper, #15-050). Philadelphia, PA: Temple University.
  • Alhassan, A. L. and Addisson, G. K., (2013). Market Structure, Efficiency and Performance: Empirical Evidence from the Ghanaian Life Insurance Market. First University of Ghana Business School Conference and Development in Africa, April 8-9, 2013, Accra, Ghana.
  • Alhassan, A. L., Addisson, G. K. and Asamoah, M. E., (2015). Market structure, efficiency and profitability of insurance companies in Ghana. International Journal of Emerging Markets, (10)4, 648 – 669.
  • A. M. Best, (2022). Best’s Review: Best’s Rankings, World’s Largest Insurance Companies - 2022 Edition. A.M. Best Company, Incorporated: Oldwick, NJ.
  • Bauer, P. W., Berger, A. N., Ferrier, G. D. & Humphrey, D. B. (1998). Consistency conditions for regulatory analysis of financial ınstitutions: a comparison of frontier efficiency methods. Journal of Economics and Business, 50, 85–114
  • Berger, A. N. & Humphrey, D. B. (1991). The dominance of inefficiencies over scale and product mix economies in banking. Journal of Monetary Economics, 28, 117-148
  • Berger, A. N., and Mester, L. J., (1997). Inside the black box: What explains differences in the efficiencies of financial institutions? Journal of Banking & Finance, 21(7), 895-947.
  • Bernier, G. & Sedzro, K., (2003). An Intertemporal Analysis of Efficiency Using DEA: The Case of the Canadian Life Insurance Industry Prior to 2000. Paper presented at the American Risk and Insurance Association 2003 Annual Meeting, Denver, CO held August 10-13.
  • Biener, C., & Eling, M. (2012). Organization and efficiency in the international insurance industry: A cross-frontier analysis. European Journal of Operational Research, 221(2), 454-468.
  • Biener, C., Eling, M. and Wirfs, J. H., (2014). The Determinants of Efficiency and Productivity in the Swiss Insurance Industry. 41st Seminar of the European Group of Risk and Insurance Economists, September 15 - 17, 2014, St. Gallen, Switzerland.
  • Camino-Mogro and Bermúdez-Barrezueta, N., (2019). Determinants of profitability of life and non-life insurance companies: evidence from Ecuador. International Journal of Emerging Markets, 14(5), 831-872.
  • Canadian Life and Health Insurance Association, (2022). Canadian Life & Health Insurance Facts 2022 Edition. Toronto, ON.
  • Carr, P. S. (2004). The Practice of Life Insurance in Australia. Sydney, NSW: Institute of Actuaries of Australia.
  • Charnes, A., Cooper, W. W. & Rhodes, E. (1978). Measuring the efficiency of decision making units. European Journal of Operational Research, 2, 429-444.
  • Cooper, W. W., Li, S., Seiford, L. M., Thrall, R. M. & Zhu, J. (2001). Sensitivity and stability analysis in DEA: Some recent developments. Journal of Productivity Analysis, 15, 217-246.
  • Cummins, J. D. & Weiss, M. A. (2000). Analyzing Firm Performance in the Insurance Industry Using Frontier Efficiency and Productivity Methods. In H. G. Dionne, (Ed.), Handbook of Insurance (pp. 767-829). Norwell (suburb of the Boston-Worcester-Providence CSA), MA: Kluwer Academic Publishers.
  • Das U. S., Davies N. and Podpiera, R., (2003). Insurance and Issues in Financial Soundness. IMF Working Paper WP/03/138, International Monetary Fund, July 2003, Washington, DC.
  • De Luca Cardillo, D. & Fortuna, T. (2000). A DEA model for the efficiency evaluation of nondominated paths on a road network. European Journal of Operational Research, 121, 549-558.
  • Donni, O. & Fecher, F. (1997). Efficiency and Productivity of the Insurance Industry in the OECD Countries. The Geneva Papers on Risk and Insurance-Issues & Practice, 22(4), 523-535.
  • Dyson, R. G., Allen, R., Camanho, A. S., Podinovski, V. V., Sarrico, C. S. and Shale, E. A., (2001). Pitfalls and protocols in DEA. European Journal of Operational Research, 132(2), 245-259.
  • Eling, M. and Jia, R., (2019). Efficiency and profitability in the global insurance industry. Pacific-Basin Finance Journal, 57, 327-341.
  • Eling, M. & Luhnen, M. (2010). Efficiency in the international insurance industry: A cross-country comparison. Journal of Banking & Finance, 34(7), 1497-1509.
  • Gaganis, C., Hasan, I. & Pasiouras, F. (2013). Efficiency and stock returns: evidence from the insurance industry. Journal of Productivity Analysis, 40(3), 429-442.
  • Golden L. L. and Yang C. C., (2019). Efficiency Analysis of Health Insurers’ Scale of Operations and Group Affiliation with a Perspective Toward Health Insurers’ Mergers and Acquisitions Effects. North American Actuarial Journal, 23(4), 626-645.
  • Greene, W. H. and Segal, D., (2004). Profitability and Efficiency in the U.S. Life Insurance Industry. Journal of Productivity Analysis, 21(3), 229-247.
  • Humphrey, D. B. & Pulley, L. B. (1997). Banks’ responses to deregulation: profits, technology and efficiency. Journal of Money, Credit and Banking, 29, 73-93.
  • Infinite Market Cap, (2023). Largest insurance companies by market cap. https://companiesmarketcap.com/insurance/largest-insurance-companies-by-market-cap/ [Date Accessed: June 15, 2023].
  • Jaloudi, M. and Bakir, A., (2019). Market structure, efficiency, and performance of jordan ınsurance market. International Journal of Business and Economics Research, 8(1), 6-13.
  • Jiang C-F. and Chen S., (2015). Study on correlation among life ınsurance market structure, efficiency and performance. China Soft Science, 2015(2), 74-84.
  • Karim, M. Z. A. & Jhantasana, C., (2005). Cost efficiency and profitability in thailand’s life ınsurance ındustry: a stochastic cost frontier approach. International Journal of Applied Econometrics and Quantitative Studies, 2(4), 19-36.
  • Kellner, S. & Mathewson, G. F. (1983). Entry, size distribution, scale, and scope economies in the life ınsurance ındustry. The Journal of Business, 56(1), 25-44.
  • Kumbhakar, S. C. and Lovell, C. A. K., (2000). Stochastic Frontier Analysis. Cambridge, UK: Cambridge University Press.
  • Liu, B., (2007). Empirical research of the market structure, efficiency and performance of life ınsurance ındustry in China. Industrial Economics Research, 2007(04), 19-26.
  • Paradi, J. C. (2002). Profit Efficiency - Health Insurance. In N. K. Avkiran, (Ed.), Productivity Analysis in the Service Sector: with Data Envelope Analysis. Camira (suburb of Brisbane), Qld: N. K. Avkiran.
  • Parida, T. K. and Debashis A., (2017). The Life Insurance Industry in India. New York, NY: Palgrave Macmillan.
  • Sun, W. & Zhong, C. (2011). Cost X-efficiency in China’s insurance companies: A stochastic frontier approach. African Journal of Business Management, 5, 11916-11924
  • Swiss Reinsurance Company Limited, (2022). World Insurance: inflation risks front and centre, Sigma 4/2022. Zurich Switzerland.
  • Tuffour, J. K., Ofori-Boateng, K., Ohemeng, W. and Jane Kabukuor Akuaku, J. K., (2021). Life ınsurance companies: determinants of cost efficiency and profitability. Journal of Accounting, Business and Management, 28(2), 1-19.
  • United States Agency International Development, (2006). Assessment on How Strengthening the Insurance Industry in Developing Countries Contributes to Economic Growth. Washington, DC.
  • Wang, H-J. and Schmidt, P., (2002). One-step and two-step estimation of the effects of exogenous variables on technical efficiency levels. Journal of Productivity Analysis, 18, 129-144.
  • Ward, D. R., (2002). The costs of distribution in the UK life insurance market. Applied Economics, 34(15), 1959-1968.
  • Wise, W., (2017). A survey of life insurance efficiency papers: Methods, pros & cons, trends. Accounting, 3(3), 137-170.
  • Wise, W., (2018). The importance of efficiency for life insurer profit: A study of Canadian life insurance companies. Theoretical and Applied Economics, (25)4, 179-204.
  • Wu, D., Yang, Z., Vela, S. & Liang, L. (2007). Simultaneous analysis of production and investment performance of Canadian life and health insurance companies using data envelopment analysis. Computers & Operations Research, 34(1), 180-198.
  • Yang, Z. (2006). A two-stage DEA model to evaluate the overall performance of Canadian life and health insurance companies. Mathematical and Computer Modelling, 43(7-8), 910–919.
  • Zanghieri, P., (2009). Efficiency of European Insurance Companies: Do Local Factors Matter? (Research Department, Association of Italian Insurers (ANIA), Working Paper). Rome, Italy: ANIA. DOI:10.2139/ssrn.1354108.
There are 46 citations in total.

Details

Primary Language English
Subjects Finance, Business Administration
Journal Section Articles
Authors

William Wıse This is me 0000-0001-8947-2351

Publication Date September 30, 2023
Published in Issue Year 2023

Cite

APA Wıse, W. (2023). THE IMPORTANCE OF EFFICIENCY FOR LIFE INSURER PROFIT REGARDING CANADIAN LIFE INSURERS. Journal of Economics Finance and Accounting, 10(3), 121-136. https://doi.org/10.17261/Pressacademia.2023.1811

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