Dynamic Financial Models of Life Insurers

Browne, Mark J.; Carson, James M.; Hoyt, Robert

doi:10.1080/10920277.2001.10595981

Cited by 52 publications

(64 citation statements)

References 21 publications

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“…A large and growing body of literature has investigated the determinants of insurance solvency and the insolvency prediction of life insurers (Carson and Hoyt, 2000;Browne et al, 2001;Adams and Buckle, 2003;Shiu, 2005;Brockett et al, 2006;Sanchis et al, 2007;Hsiao and Whang, 2009). This is due to the increasing number of insolvent life insurers in developed countries.…”

Section: Literature Reviewmentioning

confidence: 98%

“…Researchers developed a variety of techniques and methodologies, such as linear discriminant analysis (LDA), genetic algorithm (GA), multivariate discriminant analysis (MDA), logistic regression model (LRM), multivariate regression model (MRM), probit analysis (PA), and fixed or random effects regression, to predict insolvency, determine the bankruptcy classification, or identify the determinants of insurance solvency (Baranoff et al, 1999;Carson and Hoyt, 2000;Browne et al, 2001;Adams and Buckle, 2003;Shiu, 2005;Hsiao and Whang, 2009). More recently, the non-parametric analyses, known as the artificial neural network (ANN) and rough set approach (RS), have been used to determine the probability of insurance firm insolvency (Brockett et al, 1994(Brockett et al, , 1997(Brockett et al, , 2006Sanchis et al, 2007;Chiet et al, 2009).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Both findings indicated that solvency had a significant effect on efficiency. Browne et al (2001) conducted a study to determine the economic factors, market, and company characteristics affecting the solvency of life insurers. They employed panel data from 1985 to 1995 for a large number of life insurers (1539 insurers).…”

Section: Literature Reviewmentioning

confidence: 99%

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Solvency Determinants of Conventional Life Insurers and Takaful Operators

Yakob¹,

Yusop²,

Radam³

et al. 2012

Asia-Pacific Journal of Risk and Insurance

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The business of insurance is based on the trust of its policyholders, who expect that their losses will be compensated should the need arise at any time. Thus, sound financial conditions constitute the most important criterion for insurance firms, as well as for takaful operators. Although the policyholder may be the most important source of insurer finance, or a debt holder from an economic point of view through premium payments, the policyholder is not well informed in assessing the financial strength or solvency of the life insurer. Various measures of the solvency of the insurer are used in the industry, such as margin of solvency (MOS), risk based capital (RBC), and claim paying ability (CPA) rating. Unfortunately, none of these can provide information to policyholders on the financial position of the insurer. This is because the MOS and RBC for each insurer is the company's and regulator's confidential information. However, for the CPA rating, it is limited to insurers who wish to be evaluated, and therefore the assessment is not comprehensive. Because of these shortcomings, this study provides a platform for policyholders to get an idea of the solvency of the insurers/takaful operators. Furthermore, this study identifies factors that affect the solvency of the insurers/takaful operators in Malaysia. Using random effects regression on panel data for 2003-2007, it is determined that investment income, total benefit paid to capital and surplus ratio, financial leverage, and liquidity are significantly related to solvency, in which the investment income has a positive relationship, while the other three have a negative relationship. From the results obtained, the policyholders/consumers can assess the insurers' financial strength through the solvency determinants of the insurers/takaful operators, even though the actual level of solvency is not known. To some extent, this information can help policyholders/consumers make smarter choices in choosing the insurers/takaful operators

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Section: Literature Reviewmentioning

confidence: 98%

Section: Literature Reviewmentioning

confidence: 99%

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Solvency Determinants of Conventional Life Insurers and Takaful Operators

Yakob¹,

Yusop²,

Radam³

et al. 2012

Asia-Pacific Journal of Risk and Insurance

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show abstract

“…Including annuities, i.e., contracts written on the opposite site of mortality risk, would give rise to natural hedging opportunities, as analyzed in Gründl, Post, and Schulze (2006) and Cox and Lin (2007). Additionally, dependencies between lapse and surrender rates and macroeconomic conditions (Browne, Carson and Hoyt, 2001;Kim, 2005) could be accounted for.…”

Section: Discussionmentioning

confidence: 99%

Stochastic Mortality, Macroeconomic Risks, and Life Insurer Solvency

2012

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Motivated by a recent demographic study establishing a link between macroeconomic fluctuations and the mortality index k t in the Lee-Carter model, we assess the impact of macroeconomic fluctuations on the solvency of a life insurance company. Liabilities in our stochastic simulation framework are driven by a GDP-linked variant of the Lee-Carter mortality model. Furthermore, interest rates and stock prices are allowed to react to changes in GDP, which itself is modeled as a stochastic process. Our results show that insolvency probabilities are significantly higher when the reaction of mortality rates to changes in GDP is incorporated.

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“…Net premiums written as a per cent of gross premiums written Net premiums written/Average capital and surplus (%) Ambrose and Seward (1988), Harrington and Nelson (1986), Carson and Hoyt (1995), Lee and Urrutia (1996), Barniv et al (1999), Browne et al (2001), Carson and Hoyt (2003), Brockett et al (2006) Net premium written as a per cent of capital and surplus Net premiums written growth (%) Ambrose and Seward (1988), Kim et al (1995), Lee and Urrutia (1996), Pottier and Sommer (1999), Chen and Wong (2004), Brockett et al (2006), Sharpe and Stadnik (2007) Growth in net premium written…”

Section: Independent Variablesmentioning

confidence: 99%

A Competing Risks Dynamic Hazard Approach to Investigate the Insolvency Outcomes of Property-Casualty Insurers

Dang

2013

Geneva Pap Risk Insur Issues Pract

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This study applies a competing risks approach and an event time dynamic estimation framework to identify the characteristics underlying different insolvency resolutions incurred to U.S. property-casualty insurers during 1998-2010. The estimated hazard model relates the time-varying probability of a specific insolvency outcome to insurers' characteristics and macroeconomic conditions. The study finds that (i) the hazards for different insolvency outcomes are neither equal nor proportionate; (ii) the model for generic insolvency events and the models for outcome-specific insolvency events feature different significant factors, which are not due to random variations; and (iii) the outcomespecific insolvency models exhibit better forecast performance than the generic insolvency model within a five-year forecast horizon. The results of the study provide regulators with early warnings of financial distress, aid them in prioritising troubled insurers and identifying the areas most likely to reveal material problems, and inform about the interventions that should be taken under specific circumstances.

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Dynamic Financial Models of Life Insurers

Cited by 52 publications

References 21 publications

Solvency Determinants of Conventional Life Insurers and Takaful Operators

Solvency Determinants of Conventional Life Insurers and Takaful Operators

Stochastic Mortality, Macroeconomic Risks, and Life Insurer Solvency

A Competing Risks Dynamic Hazard Approach to Investigate the Insolvency Outcomes of Property-Casualty Insurers

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