Investigating the stationarity of insurance premiums: international evidence

This article explores whether there is support for the stationarity hypotheses of life and non-life insurance premiums during the period 1979–2007 for 40 heterogeneous countries. The stationarity of insurance premiums affects insurance companies’ prediction on their future inflow of premium income, which affects the liquidity of insurance companies and their investment plans and thus is relevant to the insurers’ operation. This article employs the advanced nonlinear panel unit-root test with a sequential panel selection method to classify the entire panel into two groups: stationary countries and non-stationary countries. We apply Monte Carlo simulations to derive empirical distributions of the test, which allows us to correct for the finite-sample bias and to consider the cross-country effects. We find relatively stationary life insurance premiums in countries from the following groups: high-income, Europe, and common law origin; relatively stationary non-life insurance premiums exist in the following groups: low-income, Middle East and Africa, and common law origin. Evidence herein shows that different classifications, including income levels, geographic regions, regionally or economically integrated blocs, and legal system, affect the stationarity of life and non-life insurance premiums.     

保险会计新准则对非寿险业的影响

保险会计新准则的变化主要体现在保费收入确认和准备金计量两个方面。由于绝大多数非寿险产品都能通过重大保险风险测试,保费收入几乎没有变化,因此新准则对非寿险业的影响主要体现在准备金计量上。新准则要求非寿险公司运用"三要素法"计量准备金,这将使得非寿险公司的准备金计量方式、财务管理模式和利润情况发生重大变化,对非寿险公司产生近期与远期的深远影响。     

经济政策不确定性、地区文化与保险需求

本文在拓展背景风险理论研究的基础上,揭示了经济政策不确定性对保险需求的影响及其受地区文化制约的理论机制。并利用2007-2017年中国30个地区的月度面板数据,检验了经济政策不确定性、地区文化与保险需求间的内在联系。结果发现:第一,经济政策不确定性会对保险需求产生显著正影响,且这种效应在地区人身险需求上表现更明显;第二,将地区文化指标集纳入经济政策不确定性与保险需求关系的研究框架,发现地区文化差异会对经济政策不确定性影响保险需求产生调节效应。因此政府需在充分重视经济政策波动和文化对经济活动的双重影响基础上,加强国内社会保障体系建设,建立更透明的信息传递渠道,培育人们主动抵抗风险的意识和文化习惯,调整保险供给结构,以减少不确定性对社会经济行为的负面冲击。     

Examining the Effect of Globalization on Insurance Activities in Large Emerging Market Economies

This study applies the cross-sectionally augmented distributed lag long-run estimation technique alongside bootstrap panel Granger causality testing to examine the impact of globalization on insurance market activities in large emerging market economies. Economic, social and political globalization indices are considered separately. Two alternative measures of globalization (de facto and de jure) are also used in each case for our estimations. The empirical results confirm the following; first, empirical outcomes are slightly sensitive to the choice of globalization measure used. Second, cross-sectional dependence and cross-country heterogeneity exist among large emerging market economies. Third, causality varies across large emerging economies with different conditions. We make a case for de facto measures as the most appropriate since they reflect actual practices rather than policy claims. We thus reach the conclusion that all dimensions of globalization positively impact life and non-life insurance density.     

Zur Bedeutung der sekundären Prämiendifferenzierung bei Unisex-Tarifen in der Krankenversicherung

In the German and European legislation there is a trend to prohibit gender-based premiums in the private insurance sector. Compared with other insurance sectors the private health insurance can not only differentiate the premiums ex ante but also ex post (secondary premium differentiation). A change in ex ante differentiation must result in a change in ex post differentiation. It is shown that an extended secondary premium differentiation can compensate the effects of the prohibition of gender-based premiums if we consider not only the premiums but also premium refunds and own contributions.     

Product pricing and solvency capital requirements for long-term care insurance

This paper presents a comprehensive assessment of premiums, reserves and solvency capital requirements (SCRs) for long-term care (LTC) insurance policies using Activities of Daily Living and US data. We compare stand-alone policies, whole life insurance policies with LTC benefit riders (LTC insurance combined with whole life insurance), life care annuities (LTC insurance combined with annuities) and shared LTC insurance in terms of net premium cost and SCRs. Net premiums and best-estimate reserves for base LTC insurance policies are determined using Thiele’s differential equation. Product features such as the elimination period and the maximum benefit period are compared using a simulation-based model. We show how a maximum benefit period can reduce costs and risks for LTC insurance products. SCRs for longevity risk and disability risk are based on the Solvency II standard formula. We quantify the extent to which whole life insurance policies with LTC benefit riders and life care annuities provide lower SCRs than stand-alone LTC insurance policies.     

Pricing factors in multiple-term structures from interbank rates

This article analyzes the reward for the risk embedded in interbank derivatives, seeking to characterize the size and economic sources of the components of this risk premium in interbank spread quotes. The basis swap (BS) spreads – floating-to-floating interest rate swaps – are employed as a vehicle used by investors to express their views concerning the risk of borrowing on the interbank market. Our results show that the size of the risk premium ranges from 20 to 60 basis points, depending on the tenor, during periods of financial distress. Moreover, the evolution of this risk premium increases dramatically after August 2007, primarily due to the evolution of credit variables such as sovereign and financial sector risks. Finally, we also document important sources of commonality between risk premiums at different tenors. An analysis of the determinants of risk premia reveal that investors’ compensation relates to financial sector credit and liquidity uncertainty, and risk aversion.     

Reinsurance premium principles based on weighted loss functions

ABSTRACT

In this paper, we propose new reinsurance premium principles that minimize the expected weighted loss functions and balance the trade-off between the reinsurer's shortfall risk and the insurer's risk exposure in a reinsurance contract. Random weighting factors are introduced in the weighted loss functions so that weighting factors are based on the underlying insurance risks. The resulting reinsurance premiums depend on both the loss covered by the reinsurer and the loss retained by the insurer. The proposed premiums provide new ways for pricing reinsurance contracts and controlling the risks of both the reinsurer and the insurer. As applications of the proposed principles, the modified expectile reinsurance principle and the modified quantile reinsurance principle are introduced and discussed in details. The properties of the new reinsurance premium principles are investigated. Finally, the comparisons between the new reinsurance premium principles and the classical expectile principle, the classical quantile principle, and the risk-adjusted principle are provided.     

Vergleich von ökonomischen und biometrischen Risiken in der Personenversicherung

In life insurance both the time and the amount of future payments between insurer and policyholder may be stochastic; biometrical as well as financial risks are transferred to the insurer. We present an approach that allows to decompose the randomness of the discounted value of future benefits and premiums to a sum whose addends correspond to the uncertainty of the policy development, the interest rates, the probabilities of death, the probabilities of disablement, etc. Upon modeling the actuarial assumptions stochastically, we quantify these risk factors for typical life insurance contracts and compare them with each other. Contrary to a common folklore, the examples show that the systematic biometrical risks are in many cases not marginal compared to the interest rate risk.     

存款保险、市场竞争与银行经营稳健性

本文基于银行存款市场空间竞争模型,探讨存款保险制度的实施效果和福利效应,及其与市场竞争政策的交互作用。研究表明,政府隐性担保尽管能够保障存款人利益,但会降低存款人对银行经营稳健性的要求,使得银行追求高风险高收益资产从而降低经营稳健性;而市场化的存款保险制度通过费率与风险挂钩的激励机制,能够有效提升银行经营稳健性,同时避免过高政策成本负担,实现较高的社会福利水平。随着市场竞争强化,引入风险差别费率保险制度,在提升银行经营稳健性和增进社会福利方面的效果逐渐增强。模型分析表明,当长期允许机构自由进出市场时,政府强化竞争政策短期可能降低银行的经营稳健性,但长期内高风险银行逐渐退出市场而更有效率的低风险银行进入市场,这种柔性市场退出机制使得银行业整体经营稳健性增强。因此,在金融市场中强化竞争政策,推行并完善当前市场化的风险差别费率存款保险制度,长期内有助于在保护存款人利益的同时,提升银行稳健性和社会福利。     

Does insurance activity promote economic growth? Further evidence based on bootstrap panel Granger causality test

This study applies the bootstrap panel Granger causality test to test whether insurance activity promotes economic growth, using data from 10 OECD countries over the period of 1979–2006. Empirical results indicate that one-way Granger causality running from all insurance activities to economic growth for France, Japan, Netherlands, Switzerland, and the UK, and economic growth Granger causes insurance activities in Canada (for life insurance), Italy (for total and life insurance) and the USA (for total and non-life insurance). There is a two-way Granger causality between life insurance activity and economic growth in the USA, while no causality between insurance activities and economic growth is found in Belgium (for all insurance), Canada (for total and non-life insurance), Italy (for non-life insurance) and Sweden (for life insurance). Our results also confirm the finding of Ward and Zurbruegg [Does insurance promote economic growth? Evidence from OECD economies. Journal of Risk and Insurance 67, no. 4: 489–506] showing that the insurance–growth nexus varies across countries, since their paper have previously demonstrated heterogeneity in this vein. In an analysis of a broader, though overlapping 17-country sample and taking into account banking activities, the results suggest the importance of including banking activities when investigating the insurance–growth relationship.     

中国保险业对经济增长的贡献和影响——基于单方程估计和系统估计的实证研究

保险业作为金融中介以及风险分散和损失补偿服务的提供者,可以通过风险管理服务和转化储蓄而形成资本积累来促进经济增长。本文运用中国31个省市在1999年～2008年的面板数据,利用多种单方程估计方法和多方程系统估计方法对保险业发展对经济增长的影响进行了计量分析。实证结果表明:在寿险业对经济增长影响的关系中,无论采用何种方法进行估计,可以得到相对统一的结论,即寿险业发展可以促进经济增长,且这种促进作用正在逐渐降低;在财险业影响经济增长的关系中,采用不同方法会得到具有一定差异的结果,结果并不稳健。     

The use of Hurst and effective return in investing

This study measures the deposit insurance premium under stochastic interest rates for Taiwan's banks by applying the two-step maximum likelihood estimation method. The estimation results suggest that the current premiums—charging 5, 5.5, and 6 basis points per dollar of insured deposits—are too low, but largely reflect the rank orders of the risks of the insured banks. Moreover, the regression results indicate that asset volatility dominates bank size in determining the insurance premium. When the volatility risk is decomposed into two parts, credit risk significantly dominates interest-rate risk. An examination of bank characteristics indicates that privately owned old banks are more likely to have lower levels of credit risk, asset volatility, and deposit insurance premiums than state-owned banks and newly chartered banks.     

Estimation of Crop Yields and Insurance Premiums Using a Shrinkage Estimator

We explore the estimation of crop yields and insurance premiums using a hierarchical Bayes small area estimator. The estimator is evaluated for Area Yield Production (AYP) policy using quasi-simulated corn yields in the United States. Its performance in producing reliable mean county yield and premium estimates is compared to that of a naive estimator. We also investigate the impact of these efficiency improvements on the residual losses between a farm-level policy and AYP. The proposed estimator is found to be substantially more efficient and less biased than the naive estimator.     

The Effect of Taxes on the Location of Property-Casualty Insurance Firms

States levy insurance premium taxes, which are essentially gross receipt taxes on premiums. An unusual characteristic of insurance premium taxes is that in each state in which an insurance company writes premiums, the firm pays the higher of the tax rate in the state in which the company is domiciled and the state in which the policy is written. Thus, the choice of location has a significant effect on the firm's tax liability. Using firm-level data for the property-casualty (P-C) insurance industry, we calculate the firm-specific tax rate for each P-C firm for every possible state of domicile. We estimate conditional logistic models to analyze the effect of insurance premium taxes on the choice of the state of domicile of existing and relocated firms. We find robust evidence of a small, negative, and statistically significant effect of these taxes on the choice of the state of domicile.     

中国保险需求地区差距的实证研究

本文分别构建了我国地区人身险和财产险影响因素的实证模型,使用1996年～2008年的省际面板数据,重点采用动态系统GMM估计方法,检验人身险和财产险需求地区差异的动态形成机制。研究发现：与人身保险需求相比,财产保险需求近年来的“习惯形成”特征更为显著,收入水平的增长更有利于加快当前财产保险市场的发展;东部省份的经济发展...     

Incentive Effects of Community Rating in Insurance Markets: Evidence from Massachusetts Automobile Insurance

Rate regulations in insurance markets often impose cross-subsidies in insurance premiums from low-risk consumers to high-risk consumers. This paper develops the hypothesis that premium cross-subsidies affect risk taking by insurance consumers, and tests this hypothesis by examining the marginal impact of premium subsidies and overcharges on future insurance costs. The empirical analysis uses 1990–2003 rating cell-level data from the Massachusetts automobile insurance market, in which regulation produced large cross-subsidies across cells. Consistent with the hypothesized effects, premium subsidies are found to be significantly related to higher future insurance costs, and the opposite effects are found for premium overcharges.     

Systemic risk of insurers around the globe

We study the exposure and contribution of 253 international life and non-life insurers to systemic risk between 2000 and 2012. For our full sample period, we find systemic risk in the international insurance sector to be small. In contrast, the contribution of insurers to the fragility of the financial system peaked during the recent financial crisis. In our panel regressions, we find the interconnectedness of large insurers with the insurance sector to be a significant driver of the insurers’ exposure to systemic risk. In contrast, the contribution of insurers to systemic risk appears to be primarily driven by the insurers’ leverage.     

Valuation of Participating Life Insurance Liabilities

Surrender and paid-up states are incorporated in the valuation of guaranteed benefits and payments of a level premium paying life insurance policy.

We present different valuation methods and examine to what extent they avoid capitalizing and releasing future loadings which are associated with the payment of future premiums.

We demonstrate how to avoid capital being required in the future to cover valuation strains. The paid-up benefit valuation method is being extended so that it does not require the premium basis to be on the safe-side of the valuation basis. We obtain a unification and integration of the level premium and paid-up valuation principles.     

Risk-based capital standards, deposit insurance, and procyclicality

This article shows that risk-based deposit insurance premiums generate smaller procyclical effects than do risk-based capital requirements. Thus, Basel II's procyclical impact can be reduced by integrating risk-based deposit insurance. If deposit insurance is structured as a moving average of contracts, its procyclical effects can be decreased further. Empirical illustrations of this are presented for 42 banks over the period 1987 to 1996. The results confirm that lengthening the contracts' maturities intertemporally smooths premiums but raises the average premium level needed to compensate the insurer for greater systematic risk. The distribution of risk-based premiums across banks is skewed.