Solvency Determinants of Conventional Life Insurers and Takaful Operators
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
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 6 (2012)
Issue (Month): 2 (June)
|Contact details of provider:|| Web page: https://www.degruyter.com|
|Order Information:||Web: https://www.degruyter.com/view/j/apjri|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carson, James & Hoyt, Robert, 2000. "Evaluating the risk of life insurer insolvency: implications from the US for the European Union," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 297-314, December.
- Taylor, William E., 1980. "Small sample considerations in estimation from panel data," Journal of Econometrics, Elsevier, vol. 13(2), pages 203-223, June.
- Yung-Ming Shiu, 2005. "The determinants of solvency in the United Kingdom life insurance market," Applied Economics Letters, Taylor & Francis Journals, vol. 12(6), pages 339-344.
- Brockett, Patrick L. & Cooper, William W. & Golden, Linda L. & Rousseau, John J. & Wang, Yuying, 2004. "Evaluating solvency versus efficiency performance and different forms of organization and marketing in US property--liability insurance companies," European Journal of Operational Research, Elsevier, vol. 154(2), pages 492-514, April.
- Giovanni S. F. Bruno, 2005.
"Estimation and inference in dynamic unbalanced panel-data models with a small number of individuals,"
StataCorp LP, vol. 5(4), pages 473-500, December.
- Giovanni S.F. Bruno, 2005. "Estimation and inference in dynamic unbalanced panel data models with a small number of individuals," KITeS Working Papers 165, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jun 2005.
- M. Adams & M. Buckle, 2003. "The determinants of corporate financial performance in the Bermuda insurance market," Applied Financial Economics, Taylor & Francis Journals, vol. 13(2), pages 133-143.
- Sanchis, A. & Segovia, M.J. & Gil, J.A. & Heras, A. & Vilar, J.L., 2007. "Rough Sets and the role of the monetary policy in financial stability (macroeconomic problem) and the prediction of insolvency in insurance sector (microeconomic problem)," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1554-1573, September.
- Patrick L. Brockett & Linda L. Golden & Jaeho Jang & Chuanhou Yang, 2006. "A Comparison of Neural Network, Statistical Methods, and Variable Choice for Life Insurers' Financial Distress Prediction," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(3), pages 397-419. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bpj:apjrin:v:6:y:2012:i:2:n:3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.