United Kingdom Life Insurance Research Articles

Comparative Study on The Contribution Payment System in BPJS With A Tax System-Based Regulation In NHS

The purpose of this paper is to examine the efficiencies of United Kingdom life insurance, which is regulated in the NHS with a tax-based funding system. The effectiveness of the Health Insurance System, will provide better health services for the people. Currently, there are still many complaints in the BPJS service system, such as late payments for hospitals and salaries for medical personnel. This study will use the comparative law method, by comparing the BPJS system in Indonesia with the NHS health insurance system in the UK. BPJS uses a monthly fee funding system, the amount of payment are depends on the types of class that BPJS participants has taken. Whereas the NHS only uses a tax-based funding system, where the use of this system can effectively meet all health service needs maximally. Based on the results of research on OECD countries, it is revealed that the tax-based social health insurance program tends to be more progressive and fair. Based on this comparative study, it is important for Indonesia to improve its health insurance system arrangements in order to adapt the tax-based funding system.

Board Characteristics and Profit Efficiency in the United Kingdom Life Insurance Industry

Abstract: This paper examines the effects of corporate governance mechanisms (measured by a set of board characteristics) on the profit efficiency of United Kingdom (UK) life insurance firms. A parametric ‘stochastic frontier’ approach is used to compute profit efficiency scores and second‐stage regression models are estimated to test the influence of governance mechanisms on these efficiencies. We find that, viewed in isolation, board characteristics tend to have little effect on firm efficiency in the UK life insurance market. However, we do find that the proportion of non‐executive directors on the board exhibits a significant effect on the profit efficiency of our sample UK insurers once the interaction effects among governance mechanisms are taken into account. The effect can be either positive or negative depending on whether there is separation of the CEO and board chairman positions and whether there is an audit committee. These results suggest that corporate governance is an inherently complex process and it is problematical to evaluate the effectiveness of an individual governance mechanism on a firm's economic performance. Insurers’ profit efficiency is also negatively related to risk proxies and exhibits a concave relation with firm size.

Board Characteristics and Profit Efficiency in the United Kingdom Life Insurance Industry

This paper examines the effects of corporate governance mechanisms (measured by a set of board characteristics) on the profit efficiency of United Kingdom (UK) life insurance firms. A parametric ‘stochastic frontier’ approach is used to compute profit efficiency scores and second-stage regression models are estimated to test the influence of governance mechanisms on these efficiencies. We find that, viewed in isolation, board characteristics tend to have little effect on firm efficiency in the UK life insurance market. However, we do find that the proportion of non-executive directors on the board exhibits a significant effect on the profit efficiency of our sample UK insurers once the interaction effects among governance mechanisms are taken into account. The effect can be either positive or negative depending on whether there is separation of the CEO and board chairman positions and whether there is an audit committee. These results suggest that corporate governance is an inherently complex process and it is problematical to evaluate the effectiveness of an individual governance mechanism on a firm’s economic performance. Insurers’ profit efficiency is also negatively related to risk proxies and exhibits a concave relation with firm size.

What Motivates Insurers to Use Derivatives: Evidence from the United Kingdom Life Insurance Industry

Using firm-specific variables that proxy for the motivations of life insurers’ decision to participate in derivative transactions, we examine existing theories of corporate hedging behaviour. Our findings support the evidence of previous research that risk management and scale factors explain the use of derivatives. We observe a substitution effect that insurers use on-balance-sheet hedging through structuring their assets and liabilities to reduce price risks.

Economic factors, firm characteristics and performance: a panel data analysis for United Kingdom life offices

This article examines panel data evidence to investigate the linkage between insurer performance proxied by investment yield and several economic and firm-specific factors in the United Kingdom life insurance industry. The empirical results indicate that investment yield is positively related interest rate level, but negatively related to interest rate changes, reinsurance dependence, assets held to cover linked liabilities and instability of asset structure.

Reinsurance and corporate taxation in the United Kingdom life insurance industry

There are two main tax-related arguments regarding the use of reinsurance – the income volatility reduction and the income level enhancement arguments. The income volatility reduction argument contends that firms facing convex tax schedules have incentives to hedge in order to reduce the volatility of their annual taxable income and thereby lower expected tax liabilities [Smith, C.W., Stulz, R.M., 1985. Optimal hedging policies. Journal of Financial and Quantitative Analysis 19, 127–140]. The income level enhancement argument, advanced by Adiel [Adiel, R., 1996. Reinsurance and the management of regulatory ratios and taxes in the property–casualty insurance industry. Journal of Accounting and Economics 22, 207–240], is more specific to hedging via reinsurance. This perspective holds that reinsurance enhances current reported earnings via the receipt of reinsurance commissions and so increases tax liabilities. Consequently, insurance firms with high marginal tax rates should use less reinsurance than those with low marginal tax rates if tax matters. Prior studies using data on financial derivatives have produced mixed results on the validity of the first argument, while Adiel (1996) finds the second argument insignificant in his study of the use of reinsurance by a sample of United States (US) property–liability insurance firms. This study tests the two tax-related arguments using 1992–2001 data for a sample of United Kingdom (UK) life insurance firms. We find that UK life insurers with low before-planning marginal tax rates tend to use more reinsurance; in contrast, tax convexity is found to have no significant impact on the purchase of reinsurance and so the volatility-reduction argument is not supported.

Corporate liquidity: evidence from the United Kingdom life insurance industry

This study analyses the extent and effects of macroeconomic and firm-specific factors on insurer liquidity in the context of UK life companies with panel data for the period 1985 to 2002. Ordinary least squares regressions, static and dynamic panel data models are estimated. Econometric tests indicate a preference for the random effects estimation procedure over other alternatives. The results indicate that the life office liquidity is an increasing function of equity returns, free asset ratio, termination rate, and claims ratio and a decreasing function of pension reserves-to-total reserves. Also, it is found that mutual companies tend to hold more liquid assets than do stock companies.

Empirical Evidence on the Use of Dynamic Solvency Testing and Financial Condition Reporting in the United Kingdom Life Insurance Industry

ABSTRACTTo gain insight into the use of Dynamic Solvency Testing (DST) and Financial Condition Reporting (FCR), a questionnaire was distributed to Appointed Actuaries in United Kingdom life offices. The response rate of the main survey was 76%. An independent-samples t-test for non-respondent bias was conducted and the results suggest that the respondent sample is representative of the survey population. Results from the 62 firms responding revealed: (1) Scenario testing was the most commonly used DST techniques. (2) Most life offices regularly run less than ten scenarios in scenario testing. (3) Most life offices reported using a five-year forecast period in DST. (4) The two most commonly seen difficulties are: difficulties in communicating complex issues to non-specialists, and how to present extremely adverse scenarios without causing undue concern. (5) Nearly all life offices use FCR. (6) Guidance Note 2 is generally considered acceptable. (7) Compared with the results reported by previous studies, the use of DST techniques is now more common in life offices. (8) There is a significant difference in DST/FCR practices between with-profits and non-profit offices.

The determinants of solvency in the United Kingdom life insurance market

This paper examines the solvency determinants, including economic and firm-specific factors, in the United Kingdom life insurance market. Using panel data for 1986–1999, it is found that solvency was positively related to bonds-to-total assets, equities-to-total assets, and level of new business, but negatively related to unexpected inflation, market competition, assets held to cover linked liabilities-to-total assets, life and general annuity reserves-to-total reserves, pension reserves-to-total reserves, permanent health reserves-to-total reserves, other reserves-to-total reserves, firm size, and insurance leverage. Based on panel data for the three subperiods, 1986–1990, 1990–1994, and 1994–1999, it was further found that solvency determinants changed from one epoch to another.

Performance Benchmarking in Financial Services: Evidence from the UK Life Insurance Industry

Performance benchmarking is applied to measure the profit and cost efficiency of UK life insurance products that are required by “polarization” regulations to be distributed through either independent financial advisers (IFA) or appointed and/or company representatives (AR/CR). Relative profit and cost efficiencies are assessed using the fourier flexible form econometric procedure and are based on detailed product‐level disclosure information. United Kingdom life insurance firms employing IFA distribution systems are found to be more cost and profit inefficient than AR/CR firms. The results imply that polarization exacerbated product mis‐selling practices, even after controlling for the effects of organizational form and size.

Actuarial Surplus Management in United Kingdom Life Insurance Firms

This study uses 1991–99 data gathered from the United Kingdom's life insurance industry to test empirically the notion that the reported annual surplus of a life insurer may be influenced by four firm‐specific characteristics: namely, reinsurance, output mix, organizational form and firm size. Consistent with expectations, the results indicate that the annual reported surplus is positively related to reinsurance and firm size and negatively related to the degree of product diversification. Contrary to our expectations, however, we find no evidence that proprietary (stock) life insurers tend to report higher annual surpluses than mutual life insurers.

Firm Size and Growth in the United Kingdom Life Insurance Industry

AbstractThis study tests whether the organic growth rates of United Kingdom (UK) life insurance firms are independent of size, as predicted by Gibrat's (1931) Law of Proportionate Effects. Using data for 1987–1996 and the three subperiods, 1987–1990, 1990–1993, and 1993–1996, we find that smaller life insurance firms tended to grow faster than larger ones in the 1987–1990 period and that larger life insurers tended to grow faster than smaller ones in the 1990–1993 and 1993–1996 periods. But over the ten‐year period, we find no significant difference between the growth rates of small and large firms, thus supporting Gibrat's Law as a long‐run tendency in the UK life insurance industry. When we examine firm‐specific determinants of asset growth, we find evidence in 1987–1996 and 1987–1990 that more diversified life insurance firms experienced higher growth rates on average than more specialized life insurers. We also find that the growth of life insurance firms was related to input costs during the 1990–1993 and 1993–1996 subperiods.

The Determinants of Financial Derivatives Use in the United Kingdom Life Insurance Industry

This paper examines the determinants of financial derivatives use in the United Kingdom life insurance industry. We estimate a probit regression model and a Heckman two‐stage sample selection regression model using a sample of eighty‐eight U.K. life insurers in 1995. Our results indicate that the propensity to use derivative instruments is positively related to a firm’s size, leverage and international links, and negatively related to the extent of reinsurance. We also find that mutual life insurance firms have a greater propensity than stock firms to use derivatives. The positive relation with leverage and the negative relation with reinsurance support the hypothesis that U.K. life insurers use derivatives to offset risk, rather than as a speculative means of income generation. Firm size and organizational form are the main influences on the extent of financial derivatives use.