Life Assurance Business Research Articles

Cross validating the consequences model of corporate governance underlying combination of stewardship and stakeholder theories

In this study, we examine the outcomes of good corporate governance underlying combination of stewardship and stakeholder theories. We develop a model that links good corporate governance, trust in top management, turnover intention, and organizational citizenship behaviors (OCBs). Good corporate governance was considered as antecedent and turnover intention and OCBs were considered as distal outcomes. Trust in top management was treated as a mediator in the model. We use a data set consisting of 303 and 156 branch managers collected in life assurance and banking business in Thailand to test the hypothesis. Results of our LISREL analyses support the proposed model. Good corporate governance was found to affect branch managers’ trust in top management, which in turn affects the turnover intention and OCBs. These findings have practical implication for the corporate management in Thai life assurance and banking business. Key words: Good corporate governance, trust in top management, organizational citizenship behaviors, turnover intention, multi-sample analysis.

Market Consistent Valuation of Life Assurance Business

ABSTRACTIn recent years there has been a trend towards market consistent valuation in those institutions for which actuaries have responsibilities. The larger United Kingdom with-profits insurance companies are now preparing realistic balance sheets, both for internal purposes and also at the request of the Financial Services Authority. International accounting standards have been moving to a fair value approach. Pension fund accounting under FRS 17 has also moved in this direction.In this paper we examine the reasons for the adoption of market consistent valuation and discuss some of the commercial implications and corporate valuation. We consider the methods and assumptions which can be used to develop market consistent valuations of cash flows typically encountered in the liabilities of financial institutions, together with some of the problems inherent in the calibration of models used for the valuation of these cash flows. The volatility assumption is crucial to the valuation of options and guarantees, and we discuss the relationship between historical and implied volatility.While most insurance companies initially adopted formulae to value their with-profits guarantees, several offices are now using a Monte Carlo simulation approach for their realistic balance sheets. The Monte Carlo approach enables allowance to be made for management discretion in bonus and investment policy, as well as policyholder actions. However, in many cases it is possible to develop analytical formulae for cash flows approximating those payable under insurance contracts.The valuation formulae have implications for the hedging of embedded guarantees. The authors discuss the construction of hedges for financial risks in with-profits funds, the separate perspectives of policyholders and shareholders, possible funds in which to hold hedging instruments, limitations of capital market hedging tools and the effect of taxation on hedge effectiveness.

Market Consistent Valuation of Life Assurance Business. Abstract of the Discussion

Market Consistent Valuation of Life Assurance Business. Abstract of the Discussion

Fair Valuation of Liabilities

ABSTRACTA project to develop an Accounting Standard for Insurance, with the aim of enhancing understandability, relevance, reliability and comparability of general purpose financial reporting for insurance worldwide, is being progressed by the International Accounting Standards Board. The basis of the proposals is that assets and liabilities be shown at fair values (market values for quoted instruments). This paper, prepared by a Working Party established by the Life Board of the United Kingdom actuarial profession, summarises and comments upon a number of the principal features of the proposals, as they have emerged up to September 2001. The paper goes on to consider how a system of reporting for prudential regulatory purposes might be built upon a fair value general reporting base, summarising the thinking of a number of other bodies, proposing certain principles and suggesting lines of development. The appendices to the paper discuss a number of issues in further depth and present some illustrative results of some investigations into applying fair value methods in practice. The emphasis of the paper is on reporting for life assurance business, although many of the principles apply equally to general insurance.

Developing an International Accounting Standard for Life Assurance Business

ABSTRACTThere is currently no international standard for profit reporting in life insurance companies. The paper sets out the issues which an international standard for life companies will need to address, bearing in mind compatibility with existing International Accounting Standards, in particular IAS 32 Financial Instruments: disclosure and presentation, IAS Exposure Draft E62 (now IAS 39); Financial instruments; recognition and measurement and the discussion paper of March 1997 prepared by the Steering Committee on Financial Instruments entitled ‘Accounting for Financial Assets and Financial Liabilities’. The paper discusses possible approaches to the issues which arise and comments on each, ending with some final conclusions.

Planned Changes in Accounting Principles for UK Life Insurance Companies: A Preliminary Investigation of Stock Market Impact

The Association of British Insurers’ (ABI) proposals for an ‘accruals’ method would have the effect of ‘front‐loading’ profits reported on life assurance business compared with the traditional ‘statutory solvency’ basis. The ABI argued that adoption of the method would lead to a more realistic valuation of life company shares. This research tests this view by investigating, by means of an event study, the stock market impacts of the announcements of the proposals and the initial releases of ‘accruals’ profits, utilising a recently developed methodology for allowing for the effect of industry and event date clustering. The results found here do not provide any evidence to substantiate the ABI’s view, although they do indicate that, where companies signal a change in the allocation of results as between shareholders and policyholders, share prices do reflect the perceived change in shareholder wealth. Moreover, it is argued that the accruals method itself may be more appropriately seen as reflecting and enabling a more pervasive change in managerial approach, refocusing on adding value for shareholders rather than policyholders. Any improvement in share prices resulting from this development might therefore only be expected to be very gradual and hard to distinguish from the impact of other effects.

Other than healing: medical practitioners and the business of life assurance during the nineteenth and early twentieth centuries.

The purpose of this paper is to explore briefly the nature, development and implications of the relationship between medical practitioners and life assurance companies. The aim is to elucidate the development both of the medical profession and the life insurance business--two important aspects of economic and social change in the nineteenth and early twentieth centuries which are usually treated separately. The focus is primarily, though not exclusively, on Scottish companies as they carried out a disproportionately large amount of the UK life assurance business by the mid-nineteenth century. The insurance industry's increasing, and increasingly systematic, tapping of medical expertise enabled it to raise profits by reducing losses on standard policies and by venturing out into types of business previously thought too risky. While nineteenth-century medical therapeutics may have left much to be desired, medical involvement in insurance suggests that medical practitioners were by no means ineffective. At the same time, a substantial proportion of the medical profession gained valuable part-time appointments which helped to alter the diagnostic techniques of the profession more generally. Thus insurance turns out to be an especially important element in the 'non-healing' aspects of medicine, with spin-offs for the healing side as well.

Profit, capital and value in a proprietary life assurance company. A discussion paper

AbstractThe paper first considers concepts of profit in economics, accountancy and the law relating to financial reporting. It then considers the nature of life assurance business and suggests the accounting standards appropriate to life assurance companies which would ordinarily result in accounts showing a ‘true and fair view’. An analysis of the E. C. Insurance Accounts Directive shows that there may be circumstances where its provisions conflict with such standards.The paper considers each of the statutory solvency method, embedded value reporting and the accruals method, and the author finds all of them to be inconsistent with accounting standards and the requirements of the Directive.The author puts forward the ‘Earned Profits’ method, which applies accountancy principles in determining assets and liabilities and takes credit for outstanding revenue matching acquisition costs. This approach is then used in analysing the value of a life assurance company and measuring the rate of return on capital.

A model office investigation of the potential impact of AIDS on non-lined life assurance business

A model office investigation of the potential impact of AIDS on non-lined life assurance business

Taxation in the Assessment of Profitability of Life Assurance Products and of Life Office Appraisal Values

This paper describes how the system of life office taxation in the U.K. impinges on the amount and the emergence of life assurance business profit. It considers how to allow for taxation in the assessment of product profitability and company valuation. Finally, the paper provides a brief overview of the methods of taxation of alternative savings products and of tax systems in the European Community, with a view to drawing conclusions as to possible future changes to the framework of life taxation in the U.K.

Thrift or dissipation? The business of life assurance in the early nineteenth century

Thrift or dissipation? The business of life assurance in the early nineteenth century

Thrift or Dissipation? The Business of Life Assurance in the Early Nineteenth Century

Thrift or Dissipation? The Business of Life Assurance in the Early Nineteenth Century

A Model Office Investigation of the Potential Impact of AIDS on Non-linked Life Assurance Business

The aim of this paper is to use a model office to examine the potential impact of AIDS on non-linked life assurance business in the UK.The subject of AIDS continues to stimulate a large amount of research. The UK actuarial profession has been kept informed by the regular Bulletins [1-5] from the Institute of Actuaries AIDS Working Party (the “IAWP”). Using a model developed by A. D. Wilkie [6], the IAWP examined the possible spread of the infection amongst male homosexuals and produced tables of additional mortality. The most recent Bulletin (No. 4), published in March 1989, updated these projections in the light of new data, and we have based our investigations principally upon these more recent projections.

Increasing Competition between Banks and Life Assurance Companies: A Clash of Giants or a Non‐Event?

Like many other Western Countries, Australia's post‐war financial system was tightly controlled by government regulation. In a few short years, however, following a government appointed inquiry, most of the regulations have been swept away, making it possible, for example, for life assurance companies to enter the banking industry. At the same time, changes in official regulation of life assurance have made it easier for banks to retaliate by entering the life assurance business. The background to these developments are outlined and some of their effects on both banks and life offices are discussed.

A Note on Varying Rates of Interest

SynopsisLet us suppose, for the purpose of calculating premium rates, that interest rates will not fall below those of the straight lines from their present value io to in in n years' time (in < io), thereafter remaining constant at in. On the basis of this assumption we derive formulae for the (minimum) effective rates of interest on single and annual premium contracts of term m years (m ≤ n, or m > n) and give examples in which gross interest rates fall from 8%, 9%, 10%, 11%, to 4½% in 40 years' time, and other examples. We conclude with a discussion of modifications to the term of the contracts which enable our results to be used for pure endowments, with-return endowments, endowment assurances, deferred annuities and other policies in life assurance and pensions business, and we mention some objections to our methods.Our thanks are due to C. M. Stewart, F.I.A., F.S.S., for suggesting some improvements to this note.

The Computer for Investment Research

SynopsisThree reports made to the International Congresses of the European Federation of Financial Analysts Societies on the development of investment analysis by computer are discussed in Part I. The 1966 and 1968 reports were mainly concerned with processing investment statistics, pricing individual shares or selecting portfolios by mathematical means. By 1970, however, some of the more elaborate schemes for pricing equities and selecting portfolios had been abandoned, more emphasis being given to data processing of investment statistics and to analysing by computer special categories of investments where a considerable volume of regular investment statistics are available and extensive calculations are required.The authors then proceed to describe two practical computer applications dealing with specialised classes of share. Part II deals with the application of simple statistical techniques to investment trust shares in an attempt to select those that are “cheap” or “dear”. The suggested method, tested for the first nine months of 1971, showed that the shares recommended as “buys” recorded a gain of 4.1% better than the investment trust index, whilst the “sales” underperformed the index to the extent of 6.8%.The finances of the television rental companies have distinct analogies with those of a life assurance business. TV sets have a life span like a mortality experience and their installation costs involve a new business strain; Part III demonstrates how a computer model of a TV rental company can be used to assist the analyst in forecasting future profits, allowing for likely changes in costs, taxes, etc. Similar techniques are, in fact, applicable for the analysis of South African gold mining shares which form a homogeneous group with a considerable volume of regular statistical information (see Part IV).The authors conclude that these computer applications, whilst requiring much further research, offer considerable prospects provided that accurate, reliable and specific input material is available.

The Implications for British Insurance, Particularly Long Term Business, of Joining the European Common Market

SynopsisThe European Economic Community (Common Market) was established by the Treaty of Rome signed by six countries, namely, Belgium, France, Germany, Italy, Luxembourg and the Netherlands, in 1957.Many of the eleven basic aims of the Treaty have some bearing on insurance business. The free movement of persons, services and capital is of the greatest technical interest to insurers but the measures designed to promote the economic growth of the Community which will include the expansion and improvement of capital markets could be of even greater interest—particularly to life assurers. Another aim of the Treaty, viz. to ensure fair competition within the Community, could act as a constraint on the introduction of liberalizing measures.The general programme for the progressive establishment of the Common Market over a transitional period of 12 years (extended if necessary) included a specific timetable for the introduction of freedom of establishment and freedom of services in respect of insurance transactions. The implementation of this programme as it concerns insurance has fallen into arrears and only one of the five directives which were scheduled has so far been promulgated. Nevertheless, the achievement of the aims of the Treaty of Rome must eventually result in the gradual harmonization of legislation affecting insurance business within the member states. Chiefly because of the need to avoid any distortion of competition, the measures introduced are likely to apply to all insurers within the E.E.C. irrespective of whether they transact business in one or more member states.It is premature to consider in detail the likely terms and conditions of the E.E.C. legislation as this is still a long way off. Insofar as the present pattern of insurance control legislation of most E.E.C. countries is more restrictive—particularly for long-term business—than in the United Kingdom, any short-term solution for harmonizing legislation would seem likely to involve British companies in more stringent rules. It is hoped that the E.E.C. will take into account the outcome of the discussions on similar issues which have taken place over the last decade within international organizations such as the Organization for Economic Co-operation and Development and the Comité Européen des Assurances on which the United Kingdom is represented. E.E.C. thinking may also be influenced in the direction of the progressive liberalization of insurance control legislation by the record of life assurance business in the United Kingdom and by the need to encourage the development of capital markets to which life assurance is an important contributor as a source of long-term and regular savings. Thus the ultimate pattern of E.E.C. legislation may well reflect the British system of freedom, provided such a system is well presented within the E.E.C. negotiations. Generally, problems for the British actuary will arise from the imposition of new rules within the E.E.C. not only for insurance transactions but for the many other commercial transactions with which the actuary is professionally interested as advisor or participant.Special areas of long-term business such as pension schemes; life reassurance; equity-linked contracts and private sickness insurance are described. Last but not least, in connexion with the introduction of freedom of mobility of labour, it may be necessary to consider to what extent actuarial qualifications earned in another member country can be recognized as enabling an actuary to practise in the United Kingdom.

The marketing design of life assurance proposals

Concentrates solely on custom building, as this is the area of major growth in the life assurance business. Demonstrates how the well‐known techniques of product concept testing can be applied in a service industry when mass marketing is contemplated. Delves into a study conducted in spring 1967 in Bradford, UK, involving 40 households, where the head was between 18 and 25 years of age. Reports on the questionnaire survey that covered a range of disbursement analyses, other than those specifically concerned with life assurance proposals. Concludes that the general conclusion is that the market segmentation implicit in straight life assurance and endowment assurance is meaningful, and that the conversion policy is the most effective way of straddling the two segments, to ensure brand loyalty once contact has been converted into first business.

Some Notes on the Fusion of Life Assurance Funds

The merger, a few years ago, of two large composite insurance company Groups brought together under one ultimate control three substantial life assurance funds each fully operative and transacting all types of ordinary life assurance and annuity business. Those three funds have now been fused together by the legal transfer of the life businesses of two of the companies in the Group to the parent company and, as this fusion seems to be the first of its kind which has been undertaken for many years, and certainly the first of such size in the life assurance history of Great Britain, it has been suggested that the operation is of sufficient interest to actuaries generally as to warrant the submission of a paper to a sessional meeting. We are, however, conscious of the fact that, whilst the operation may have added to our history as a practical application of the law and some of our principles, it has not added either to previous knowledge or to our technique. The law governing the operation has remained virtually unchanged since the comprehensive review of life company amalgamations by the late K. J. Britt in the paper he submitted to the Institute in April 1931 (J.I.A. 62, 276) and probably the whole of the technical aspects involved have been expounded by Redington in the masterful review of the principles of life office valuations which he submitted in April 1952 (J.I.A. 78, 286).

The Effect of the 1965 Finance Act on General Insurance and Ordinary Life Assurance Business.

This paper is not intended to be a fully comprehensive survey of the taxation of insurance business. Rather it is meant to highlight some of the aspects of the taxation of this business which have been affected by the 1965 Finance Act and which should now, I think, be influencing our thinking as regards the transacting of insurance from both the shareholders' and the policyholders' point of view. Despite the splendid efforts of both the Life Offices' and British Insurance Associations during the past year, not all these changes have had the publicity which might have been expected after a normal Finance Act. I have dealt with general insurance and ordinary life assurance separately and, although the paper is written from a proprietary office's point of view, most of it is equally applicable to a mutual office. Neither have I dealt specifically with industrial life business, but I believe that most of the paper applies to this as well.