Possibilities of creating optimal investment portfolio of insurance companies in Serbia

Kočović, Jelena; Paunović, Blagoje Ž.; Jovović, Marija

doi:10.5937/ekopre1508385k

Cited by 4 publications

(4 citation statements)

References 4 publications

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“…The development of investment diversification coincided with the development of portfolio theory [3]. The Markowitz portfolio selection model includes the identification of available risk-return combinations from a set of risky assets, construction of the optimal portfolio of risky assets and, then, the selection of the complete portfolio by combining risk-free assets and optimal risky portfolio [4].…”

Section: Literature Reviewmentioning

confidence: 99%

Testing of portfolio optimization through investments in stock market indices and Bitcoin

Grujić¹,

Mekinjić²,

Vujičić-Stefanović³

2021

Ekonomika preduzeća

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This paper presents an empirical verification of the effectiveness and usefulness of investment diversification using the main stock exchange indices and Bitcoin. The objective is to determine the effects applying the Markowitz portfolio optimization theory, i.e., the advantages of applying the modern portfolio theory for institutional investors. The research offers an answer to the following question: what are the advantages and disadvantages of using Bitcoin in portfolio optimization? The paper contributes to the representation of the reach and limitations of the modern portfolio theory for institutional investors. The conclusion is that rational behaviour of institutional investors requires consideration of portfolio optimization using the Markowitz model, because it is possible to create portfolios which, on the basis of historical returns, provide desired returns alongside certain risks. The methodology includes the analysis of high frequency data, i.e., daily trading data were used. The results indicate that the use of the Markowitz portfolio selection method, with all its limitations, is desirable, possible and applicable, but that it entails serious flaws in the sense of neglecting transaction costs, foreign exchange differences and the real value in the stock market. The results of the research show that Bitcoin is a good source of diversification in a portfolio that contains traditional financial instruments both for the risk-averse investor as well as for those investors who have a greater appetite for risk. The conclusion is that rational behavior of institutional investors requires consideration of investing in Bitcoin using the Markowitz model. However, given the high degree of volatility, investors should be very careful when making decisions about including Bitcoin in the portfolio.

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Section: Literature Reviewmentioning

confidence: 99%

Testing of portfolio optimization through investments in stock market indices and Bitcoin

Grujić¹,

Mekinjić²,

Vujičić-Stefanović³

2021

Ekonomika preduzeća

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“…Such a trend does not favor the growth and development of the life insurance market and efforts have to be made to change the relationship between long-term and short-term investments. Kočović et al (2015) pointed out that the problem was that the financial market in Serbia was underdeveloped both in depth and breadth, characterized by a low supply of financial instruments and a low level of investment activities. Due to this general situation, insurers invested most of their funds in safer financial instruments such as short-term bonds.…”

Section: Life Insurance Market In the Western Balkansmentioning

confidence: 99%

“…This situation is contrary to current trends in the investment activity of insurers in the European Union. Also, inadequate availability of financial instruments, prices and yield movements, negatively affect the role of Serbian insurers as institutional investors (Kočović et al, 2015).…”

Section: Table 4 Correlation Coefficients Between Observed Variables -Montenegromentioning

confidence: 99%

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Impact of premium reserve on life insurance investments in the Western Balkans

Tomašević¹,

Novović-Burić²,

Kašćelan³

et al. 2021

Serb J Management

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The growing importance of life insurance in the world imposes a greater need for research in this area, particularly in the Western Balkans where the trend of growth has been closely accompanied by life insurance for the past two decades. Taking into consideration that life insurance companies are significant participants in the financial market, this research paper examines the impact of the premium reserve on the volume of financial investments of life insurance companies in Western Balkan countries, based on aggregate data on country level. In order to test its effect, linear correlation and regression models were used, based on data collected for the period 2006-2016. Additionally, comparative analysis was used to compare the position of life insurance companies in financial markets. The results obtained by applying correlation and regression analysis showed that there is a strong positive correlation between premium reserve and financial investments in all of the aforementioned countries in the region. This result is an important strategic guideline for the regulators and policymakers to make advancements in the life insurance sector as well as in the financial market of the Western Balkans.

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Investment Portfolio Allocation and Insurance Solvency: New Evidence from Insurance Groups in the Era of Solvency II

Poufinas,

Siopi

2024

Risks

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This study examines the effect of the investment portfolio structure on insurers’ solvency, as measured by the Solvency Capital Requirement ratio. An empirical sample of 88 EU-based insurance groups was analyzed to provide robust evidence of the portfolio’s impact on the Solvency Capital Requirement ratio from 2016 to 2022. Linear regression and supervised machine learning models, particularly extra trees regression, were used to predict the solvency ratios, with the latter outperforming the former. The investigation was supplemented with panel data analysis. Firm-specific factors, including, unit-linked and index-linked liabilities, firm size, investments in property, collective undertakings, bonds and equities, and the ratio of government bonds to corporate bonds and country-specific factors, such as life and non-life market concentration, domestic bond market development, private debt development, household spending, banking concentration, non-performing loans, and CO2 emissions, were found to have an important effect on insurers’ solvency ratios. The novelty of this research lies in the investigation of the connection of solvency ratios with variables that prior studies have not yet explored, such as portfolio asset allocation, the life and non-life insurance market concentration, and unit-linked and index-linked products, via the employment of a battery of traditional and machine enhanced methods. Furthermore, it identifies the relation of solvency ratios with bond market development and investments in collective undertakings. Finally, it addresses the substantial solvency risks posed by the high banking sector concentration to insurers under Solvency II.

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Possibilities of creating optimal investment portfolio of insurance companies in Serbia

Cited by 4 publications

References 4 publications

Testing of portfolio optimization through investments in stock market indices and Bitcoin

Testing of portfolio optimization through investments in stock market indices and Bitcoin

Impact of premium reserve on life insurance investments in the Western Balkans

Investment Portfolio Allocation and Insurance Solvency: New Evidence from Insurance Groups in the Era of Solvency II

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