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Risk management in life insurance companies: Evidence from Taiwan

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  • Hu, Jin-Li
  • Yu, Hsueh-E

Abstract

The solvency issue of life insurance companies has become more important in recent years as business risks turn increasingly greater. This study examines the relationship among investing risk, underwriting risk, and the capital ratio during the post risk-based capital regulation period of 2004–2009 in Taiwan. In addition to the two-stage least square regression (2SLS), we also adopt the two-stage quantile regression (2SQR) to capture the effects of low capital (or risk) levels and high capital (or risk) levels. 2SLS do not fully explain the capital-risk relation. Contrary to previous evidence reported in the U.S., our findings in 2SQR model indicate that the relationship between capital and underwriting risk is positive, while the relationship between investing risk and capital shows a reverse pattern. Overall, the 2SQR provides stronger evidence than the 2SLS.

Suggested Citation

  • Hu, Jin-Li & Yu, Hsueh-E, 2014. "Risk management in life insurance companies: Evidence from Taiwan," The North American Journal of Economics and Finance, Elsevier, vol. 29(C), pages 185-199.
    • Handle: RePEc:eee:ecofin:v:29:y:2014:i:c:p:185-199
    DOI: 10.1016/j.najef.2014.06.012
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    Cited by:

    1. Abdul Latif Alhassan & Nicholas Biekpe, 2018. "Competition and Risk-Taking Behaviour in the Non-Life Insurance Market in South Africa," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(3), pages 492-519, July.
    2. Ignacio Moreno & Purificación Parrado‐Martínez & Antonio Trujillo‐Ponce, 2020. "Economic crisis and determinants of solvency in the insurance sector: new evidence from Spain," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2965-2994, September.
    3. Yu-Yen Ku & Tze-Yu Yen, 2016. "Heterogeneous Effect of Financial Leverage on Corporate Performance: A Quantile Regression Analysis of Taiwanese Companies," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(03), pages 1-33, September.

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    More about this item

    Keywords

    Investing risk; Underwriting risk; Two-stage quantile regression; Risked-based capital;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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