Return attribution analysis of the UK insurance portfolios

Abstract

We examine the attribution of premium growth rates for the five main insurance sectors of the United Kingdom for the period 1969-2005; in particular, Property, Motor, Pecuniary, Health & Accident, and Liability. In each sector, the growth rates of aggregate insurance premiums are viewed as portfolio returns which we attribute to a number of factors such as losses, expenses, their expectations and uncertainty as well as market power, using the Sharpe (1988, 1992) Style Analysis. Our estimation method differs from the standard least squares practice which does not provide confidence intervals for style betas and adopts a Bayesian approach, resulting in a robust estimate of the entire empirical distribution of each beta coefficients over the long run for the full sample. We also perform a dynamic analysis of robust estimation for a rolling window of seven overlapping samples. Our empirical findings show that there are some main differences across industries as far as the shares attributed to the underlying factors in the long run. Rolling regressions assist us to identify the variability of these shares over time, but also across industries.

Regulations, profitability, and risk-adjusted returns of European insurers: An empirical investigation

“…34 We would like to thank an anonymous reviewer for a comment that motivated us to consider these additional firm-level control variables. As the reviewer noted, it is worthwhile to point out that premiums can be subject to strong underwriting cycles (see, for example, Cummins and Outreville, 1987;Christodoulakis and Mamatzakis, 2010). 35 We find that (i) RESPR has a negative and statistically significant impact on both ROA and the Sharpe ratio, (ii) NGPREM has a positive effect on profitability, and Then, we re-estimate our base model while adding in turn country-level variables to control for (i) macroeconomic conditions, (ii) stock market development, (iii) overall quality of the institutions in the country, and (iv) legal origins.…”