Journal ArticleDOI
Optimal Capital Utilization by Financial Firms: Evidence from the Property-Liability Insurance Industry
J. David Cummins,Gregory P. Nini +1 more
TLDR
This paper investigated the use of capital by insurers to provide evidence on whether the capital increase represents a legitimate response to changing market conditions or a true inefficiency that leads to performance penalties for insurers.Abstract:
Capitalization levels in the property-liability insurance industry have increased dramatically in recent years—the capital-to-assets ratio rose from 25% in 1989 to 35% by 1999. This paper investigates the use of capital by insurers to provide evidence on whether the capital increase represents a legitimate response to changing market conditions or a true inefficiency that leads to performance penalties for insurers. We estimate “best practice” technical, cost, and revenue frontiers for a sample of insurers over the period 1993–1998, using data envelopment analysis, a non-parametric technique. The results indicate that most insurers significantly over-utilized equity capital during the sample period. Regression analysis provides evidence that capital over-utilization primarily represents an inefficiency for which insurers incur significant revenue penalties.read more
Citations
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Journal ArticleDOI
Evaluation of research in efficiency and productivity:a survey and analysis of the first 30 years of scholarly literature in DEA
TL;DR: An extensive, if not nearly complete, listing of DEA research covering theoretical developments as well as "real-world" applications from inception to the year 2007 is presented.
Posted Content
Does Enterprise Risk Management Increase Firm Value
TL;DR: In this paper, the authors find evidence of a positive relation between increasing levels of traditional risk management capability and firm value but no additional increase in value for firms achieving a higher ERM rating.
Journal ArticleDOI
Does Enterprise Risk Management Increase Firm Value
TL;DR: In this article, the effectiveness of enterprise risk management (ERM) has been investigated and little is known about its effectiveness, except that it is a construct that overcomes limitations of silo-based traditional risk management.
Journal ArticleDOI
Efficiency in the international insurance industry: A cross-country comparison
Martin Eling,Michael Luhnen +1 more
TL;DR: In this article, a broad efficiency comparison of 6462 insurers from 36 countries is conducted, considering life and non-life insurers, and they find a steady technical and cost efficiency growth in international insurance markets from 2002 to 2006.
Book ChapterDOI
Analyzing Firm Performance in the Insurance Industry Using Frontier Efficiency and Productivity Methods
J. David Cummins,Mary A. Weiss +1 more
TL;DR: A review of frontier efficiency and productivity methodologies that have been developed to analyze firm performance, emphasizing applications to the insurance industry, is presented in this article, where the focus is on the two most prominent methodologies: stochastic frontier analysis using econometrics and non-parametric frontier analyses using mathematical programming.
References
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Journal ArticleDOI
Conglomeration versus Strategic Focus: Evidence from the Insurance Industry
TL;DR: In this article, the authors provide evidence on the validity of the it conglomeration hypothesis versus the strategic focus hypothesis for financial institutions using data on U.S. insurance companies and distinguish between the hypotheses using profit scope economies, which measure the relative efficiency of joint versus specialized production.
Journal ArticleDOI
Productive performance of the French insurance industry
TL;DR: In this article, the authors used parametric and nonparametric approaches to construct a frontier to be used as a yardstick of productive efficiency for both life and non-life insurance companies.
Posted Content
Analyzing Firm Performance in the Insurance Industry Using Frontier Efficiency Methods
John Cummins,Mary A. Weiss +1 more
TL;DR: In this article, the authors discuss the two principal types of efficiency frontier methodologies -the econometric (parametric) approach and the mathematical programming (non-parametric), which are used for testing economic hypotheses; providing guidance to regulators and policymakers; comparing economic performance across countries; and informing management of the effects of procedures and strategies adapted by the firm.
Journal ArticleDOI
Measuring cost efficiency in the property-liability insurance industry☆
J. David Cummins,Mary A. Weiss +1 more
TL;DR: In this article, the authors investigated the efficiency of large and small insurers in the context of property-liability insurance and found that large insurers operate in a narrow range around an average efficiency level of about 90 percent relative to their cost frontier.
Journal ArticleDOI
Adverse Selection, Private Information, and Lowballing in Insurance Markets
TL;DR: In this paper, Cooper and Hayes extend the model of Rothschild and Stiglitz to multiple periods and show that the result is a self-selecting equilibrium characterized by price highballing, or systematically overcharging new business.
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