Unregulated Corporate Financial Disclosure and Analysts’ Forecast Properties: The Case of Embedded Value Reporting by Life Insurers

This paper investigates the association between life insurers’ voluntary disclosure of embedded value (EV), an unregulated market-driven fair value measure, and analyst forecast accuracy and dispersion. EV is an estimate of the present value of future net cash flows from in-force life insurance business. Advocates of this disclosure believe that EV is a better measure of economic performance than traditional GAAP measures. Others argue that corporate management has discretion in estimating and reporting EV. Further, analysts may have access to information that allows the development of possibly more accurate estimation metrics in the absence of EV disclosure. It is then an empirical issue to determine whether EV disclosure has any incremental effect on analysts’ forecast properties. Using a multi-country setting, we find that EV disclosure is positively associated with analysts’ earnings forecast accuracy and negatively related to forecast dispersion. This result is consistent with the alternative hypothesis that disclosure of EV provides a richer information set that enriches analysts’ forecasts beyond their own in-house developed surrogates. As guidance for insurance accounting and disclosure evolves, our findings support the value of continuing to provide EV information to the public.

Impact of Gender and Age on Claim Rates of Dread Disease and Cancer Insurance Policies in Taiwan

In this paper, the impact of both gender and age on the claim rates of dread disease and cancer insurance policies were examined using unique data taken from Taiwan’s private health insurance policies issued by non-life insurers during the 2012 to 2015 policy years. Those aged 30–39 served as the reference group. For the total number of dread disease policies, male insureds had a higher non-cancer claim probability than female insureds, while an age under 20 was associated with much lower claim rates for dread disease policies than for ages over 50. The claim rate for dread disease policies increased rapidly beginning at age 40 for both cancerous and non-cancerous diseases amongst male insureds. Amongst female insureds, those under 20 had much lower claim rates for dread disease policies. Only those aged 50–59 had a higher claim rate for non-cancerous diseases. For the total number of cancer insurance policies, male insureds had lower claim rates than female insureds, with an upward trend being associated with age. For male (female) insureds aged over 40 (20), the claim rates of cancer increased with age.

Consequences of Growth at Freedom AV Life Insurance

The case deals with ethical issues in marketing in a larger context encountered while managing channels. Freedom AV Life Insurance, established in 2002, was a laggard in terms of revenue generation among private life insurers in the country. A new CEO, Ramesh Ramachandran, was hired to improve revenues, which drastically improved post his joining and upon on him hiring a new sales head. However, customer grievances multiplied, and Rajesh Bhardwaj, the customer services head, was questioned by the CEO and was asked to submit an action plan to stem the rising complaints. Bhardwaj felt this was the result of mis-selling by agents and the salesforce of the company. Bhardwaj proposed a solution by emailing the sales head. Just as he had finished writing the mail, he was surprised to find a new mail from the CEO asking him to prepare a presentation before the company’s board of directors in two days. At the end of the case, Bhardwaj becomes engulfed with self-doubt and anxiety on what to present before the board members. The case deals with ethical issues in marketing financial products like life insurance and looks at solutions to the practice of mis-selling financial services. Students would attempt to find answers to the question of whether they can achieve sales goals without resorting to unethical practices.

Determinants of Financial Performance of Insurance Companies: Empirical Evidence Using Kenyan Data

The drivers of financial success of the insurance industry are of interest to several players in any economy including the government; policymakers; policyholders; and investors. In Kenya; there have been relatively few studies on this topic; most of which look at narrow elements that determine insurance companies’ performance. This article sought to explore the components contributing to the financial performance of insurance firms. We employed a sample consisting of 37 general insurers and 16 life insurers for the period running from 2009 to 2018 and utilised panel data methods in order to establish the determinants of financial performance of Kenyan insurers. The pooled OLS; fixed effects and random effects models were estimated with the financial performance measures (proxied by either ROA or ROE) as the dependent variables. The results of the study documented that insurer financial performance and size were positively related. The study also found that insurer financial performance was negatively related to the age variable. The study also unraveled that higher leveraged insurance companies performed better than their lowly geared peers. This article provides broad analyses of the various drivers of financial performance of the insurance industry in Kenya. The findings of this study contribute to the academic literature on the financial performance of the insurance sector in Kenya and Africa as a whole. Furthermore; it gives pointers to the management of insurance companies on the aspects of their business that would need greater attention to drive and sustain superior financial performance.

CEO Compensation in Korea: Is It Different Than in the US? A Comparison between Korean Non-Life Insurance Firms and US Property-Liability Insurance Firms

This study investigates the level, structure, and pay-for-performance relationship of CEO compensation in Korean non-life insurance companies. We find that seniority plays an important role in setting CEO compensation practices and that performance-based pay, such as bonus, is more effective than base salary in enhancing shareholder value for Korean non-life insurers. Unlike previous studies that show that international differences in executive pay have been diminished considerably since the 2000s, our evidence shows that there is a remarkable difference in CEO compensation between Korean non-life insurers and U.S. property-liability insurers. Furthermore, we provide evidence that the pay-performance relationship is weaker in Korean non-life insurance companies relative to US counterparts, suggesting that it is necessary for Korean non-life insurers to tie performance-based compensation more closely to shareholder value in the design of CEO compensation.

The Negative Impact of COVID-19 on Life Insurers

Understanding COVID-19 induced mortality risk is significant for life insurers to better analyze their financial sustainability after the outbreak of COVID-19. To capture the mortality effect caused by COVID-19 among all ages, this study proposes a temporary adverse mortality jump model to describe the dynamics of mortality in a post-COVID-19 pandemic world based on the weekly death numbers from 2015 to 2021 in the United States. As a comparative study, the Lee-Carter model is used as the base case to represent the dynamics of mortality without COVID-19. Then we compare the force of mortality, the survival probability and the liability of a life insurer by considering COVID-19 and those without COVID-19. We show that a life insurer's financial sustainability will deteriorate because of the higher mortality rates than expected in the wake of COVID-19. Our results remain unchanged when we also consider the effect of interest rate risk by adopting the Vasicek and CIR models.

The Effect of Branch Office Locations on Technical Efficiency: Evidence from the Indian Life Insurance Industry

The purpose of this article is to investigate the efficiency and productivity growth of Indian life insurance industry and to assess the effect of branch office locations on efficiency. This study has analysed the efficiency and productivity performance of all the 24 life insurance companies during the period from 2016 to 2019, using slack-based measures (SBM) of data envelopment analysis. SBM super-efficiency model is used to rank the fully efficient life insurers. Malmquist index is used to assess the productivity of life insurance companies. To assess the effect of branch office geographical locations on efficiency, double bootstrap regression has been used. The findings indicate that Indian life insurance industry experienced significant fluctuations in mean technical efficiency during the study period. Almost 50% of life insurers operated efficiently in one or more years during the study period. Only 3 out of 24 life insurers were found scale efficient. Interestingly, 50% of life insurers experienced growth during our study period. Double bootstrap regression analysis indicates that semi-urban and rural branch offices have positive effect on the efficiency of the life insurers. This study is first of its kind that has assessed the effect of branch office locations on the efficiency of life insurers. The study brings to light the operating characteristics, efficiencies and productivity of the Indian life insurance companies for the period from 2016 to 2019.

What's Wrong with Annuity Markets?

We show that the supply of life annuities in the U.S. is constrained by interest rate risk. We identify this effect using annuity prices offered by U.S. life insurers from 1989 to 2019 and exogenous variations in contract-level regulatory capital requirements. The cost of interest rate risk management accounts for at least half of the average life annuity markups or eight per- centage points. The contribution of interest rate risk to annuity markups sharply increased after the great financial crisis, suggesting new retirees' opportunities to transfer their longevity risk are unlikely to improve in a persistently low interest rate environment.