nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒06‒11
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Determinants of Insurers' Performance in Risk Pooling, Risk Management, and Financial Intermediation Activities By Georges Dionne; Robert Gagné; Abdelhakim Nouira
  2. Portfolio Choice and Benchmarking: The Case of the Unemployment Insurance Fund in Chile By Castaneda, Pablo
  3. Credit information quality and corporate debt maturity : theory and evidence By Zhang, Chendi; Sorge, Marco
  4. Individuals' Use of Care While Uninsured: Effects of Time Since Episode Inception and Episode Length By Carole Roan Gresenz; Jeannette Rogowski; José J. Escarce

  1. By: Georges Dionne; Robert Gagné; Abdelhakim Nouira
    Abstract: Corporate finance theory predicts that firms' characteristics affect agency costs and hence their efficiency. Cummins et al. (2006) have proposed a cost function specification that measures separately insurer efficiency in handling risk pooling, risk management, and financial intermediation functions. We investigate the insurer characteristics that determine these efficiencies. Our empirical results show that mutuals outperform stock insurers in handling the three functions. Independent agents and high capitalization reduce the cost efficiency of risk pooling. Certain characteristics such as being a group of affiliated insurers, handling a higher volume of business in commercial lines, assuming more reinsurance or investing a higher proporotion of assets in bonds, do significantly increase insurers' efficiency in risk management and financial intermediation.
    Keywords: Risk pooling, risk management, financial intermediation, property-liability insurance, efficiency, agency costs
    JEL: D21 D23 G22
    Date: 2007
  2. By: Castaneda, Pablo
    Abstract: A new Unemployment Insurance System based on individual accounts was launched in Chile on October 2002. One of the most interesting features of the system is given by the compensation scheme of the fund manager, which contains a performance based incentive benchmarked to one of the default portfolios of the pension system (pension funds Type E, with a 100% investment in fixed-income securities). This paper studies the portfolio choice problem of a fund manager which is subject to a similar performance-based compensation scheme. We model the portfolio choice problem of a risk averse portfolio manager that must finance an exogenous sequence of benefits, and whose terminal payoff depends upon the terminal value of the portfolio under management, relative to an exogenous benchmark portfolio. Our interest is on the consequences of the incentive scheme over the portfolio that is selected by the portfolio manager. For the Black and Scholes [1973] economy we are able to determine the investment policy in closed form. We show that the riskiness of the portfolio depends on the composition of the benchmark, and that the fund manager is motivated to imitate the investment policy of the benchmark in some random scenarios.
    Keywords: Benchmark portfolio; Individual accounts; Portfolio choice; Unemployment Insurance
    JEL: H55 D81 G18 G11
    Date: 2005–09–30
  3. By: Zhang, Chendi; Sorge, Marco
    Abstract: This paper provides new theoretical and empirical evidence suggesting that the quality of credit infor mation may be a key element in explaining the maturity structure of corporate debt around the world. In markets with poor credit information and hence a high degree of uncertainty about borrower quality, the authors find suboptimal equilibria in which short-term contracts are preferred either as a hedge against uncertainty to limit losses in bad states (in the symmetric information case) or as a screening device to learn about borrower credit quality in the course of a repeated lending relationship (in the asymmetric information case). The results of the model are supported by the econometric analysis of panel data from both industrial and developing economies. The authors find that countries with better quality of credit information (for example, as a result of improvements in credit reporting systems or accounting standards) are characterized by a higher share of long-term debt as a proportion of total corporate debt ceteris paribus. The findings suggest that promoting institutions and policies to improve the quality of credit information is an important prerequisite for increasing access of firms to long-term finance.
    Keywords: Banks & Banking Reform,Financial Intermediation,Economic Theory & Research,Insurance & Risk Mitigation,Financial Crisis Management & Restructuring
    Date: 2007–06–01
  4. By: Carole Roan Gresenz; Jeannette Rogowski; José J. Escarce
    Abstract: Few studies have addressed how use of care may vary over the course of an episode of being uninsured or across uninsured episodes of varying duration. This research models the probability that an uninsured individual has (a) any medical expenditures or charges, and (b) any office-based visit during each month of an uninsured episode. We find that the ultimate length of an individual's episode of being uninsured bears relatively little on individuals' use of healthcare in any particular month and that the probability of health care utilization rises during the first year of the episode, with more use in the second six months of the year compared to the first six months.
    JEL: D1 D19 I19
    Date: 2007–05

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