Abstract
This paper analyzes the relationship between the financial health of insurers and their efficiency through a two-stage methodology. In a first stage, efficiency is calculated using a nonparametric DEA approach. In a second stage, a Tobit model, with panel data, is used to study how financial health – measured by financial ratios – is related to the efficiency scores. To do this, we have considered 424 insurers, both life and non-life, from 14 different European countries during the period 2007-2011. The results show that there is a positive relation between the efficiency scores and the following ratios: ROA, the guarantee ratio, the ratio of retention, the premium growth and the percentage of provisions. The size of the entity and the combined ratio are negatively related to efficiency. This allows us to confirm that insurers with the best financial health also happen to be the most efficient.
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