No abstract

Dynamic financial analysis has become one of the important tools that actuaries use to model the underwriting and investment operations of insurance companies. The first step in carrying out the analysis is to investigate the most important factors affecting company performance. This paper identifies the determinants of the performance of United Kingdom general insurance companies using a panel data set consisting of economic data and Financial Services Authority/Department of Trade and Industry returns over the period 1986 to 1999. Three performance measures are used to capture different aspects of insurance operations. These measures are related to a number of economic and firm specific variables, chosen on the basis of relevant theory and literature. An ordinary least squares regression model and two panel data models are estimated for each of three performance measures. This paper also addresses several important econometric problems that are usually ignored in applied work in the context of panel data analysis. Based on the empirical results, this study finds that liquidity, unexpected inflation, interest rate level and underwriting profits are statistically significant determinants of the performance of U.K. general insurers.

No abstract

Using a data set consisting of statutory returns of U.K. non-life insurers from 1985 to 2002, I find that insurers with higher leverage tend to purchase more reinsurance, and insurers with higher reinsurance dependence tend to have a higher level of debt. My results are consistent with the expected bankruptcy costs argument, agency costs theory, risk-bearing hypothesis, and renting capital hypothesis. I also find that the impact of leverage on reinsurance will be weaker for insurers that use more derivatives than those that use less. Moreover, high levels of derivative use increase the leverage gains attributable to reinsurance.

No abstract