Determinants of the quality of financial management of insurance companies

Abstract

This study is devoted to the analysis of the statistical relationship between the efficiency of an insurance company and a number of factors characterizing the structures of its assets. Efficiency in the study is considered as a metric that evaluates the quality of an organization’s management, which is the one of the most important characteristic of its financial stability.The empirical analysis was carried out using data from the financial statements of insurance companies for the period from 2017 to 2020 of the group of leaders in terms of insurance premiums of the Expert RA rating agency based on the results of 2020. Life insurance companies, reinsurance companies and mutual insurance companies were excluded from this list due to the specifics of their business and financial statements.For the companies included in the final sample, an assessment of overall efficiency was built. The methodology of its calculation is formulated and developed in [3, 14, 15]. It is based on Data Envelopment Analysis (DEA). The partial efficiency indicators obtained for a certain set of DEA model specifications are aggregated into several indicators using the principal component analysis method (PCA). It is important that there is a positive correlation between the overall efficiency indicator and the partial efficiency indicators.The first principal component acts as an indicator of overall efficiency, the others allow one to identify its sources. This makes it possible to compare companies that have the same overall efficiency.Further, for all representatives of the final sample, a regression model of the statistical relationship of overall efficiency with the characteristics of the asset structure was built. The model specification was performed based on the MFP (Multivariable Model-Building with Fractional Polynomials) algorithm [16, 17], which allows to adapt the specification of the regression model to the properties of the data and identify nonlinear statistical relationships.The results of the evaluation of the model allow us to assert that the general and, accordingly, all partial performance indicators have a statistical relationship with the selected characteristics of the asset structure. The nature of the relationship is predominantly nonlinear. The results obtained in the work can be useful in forming a strategy for managing the financial stability of an insurance company, as well as for potential partners and investors in solving the task of benchmarking.