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on Insurance Economics |
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Issue of 2010‒05‒15
five papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Warren E. Weber |
| Abstract: | Prior to the Civil War several states established bank liability insurance schemes of two basic types. One was an insurance fund, in which member banks paid into a state-run fund that would pay losses of bank creditors. The other was a mutual guarantee system, in which survivor banks were legally responsible the liabilities of any bank that became insolvent. Both schemes did well at insuring bank creditors, but neither prevented bank panics. Bank failure rates were somewhat higher for banks that were part of these schemes. The experience with these schemes shows that regulatory incentives matter for controlling moral hazard. The schemes that provided the most control of moral hazard were those that had a high degree of mutuality of losses borne by all banks participating in the scheme. |
| Keywords: | Deposit insurance ; Moral hazard ; Bank notes |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:679&r=ias |
| By: | emmanuel, mamatzakis; george, christodoulakis |
| Abstract: | We examine the attribution of premium growth rates for the five main insurance sectors of the United Kingdom for the period 1969-2005; in particular, Property, Motor, Pecuniary, Health & Accident, and Liability. In each sector, the growth rates of aggregate insurance premiums are viewed as portfolio returns which we attribute to a number of factors such as realized and expected losses and expenses, their uncertainty and market power, using the Sharpe (1988, 1992) Style Analysis. Our estimation method differs from the standard least squares practice which does not provide confidence intervals for style betas and adopts a Bayesian approach, resulting in a robust estimate of the entire empirical distribution of each beta coefficients for the full sample. We also perform a rolling analysis of robust estimation for a window of seven overlapping samples. Our empirical findings show that there are some main differences across industries as far as the weights attributed to the underlying factors. Rolling regressions assist us to identify the variability of these weights over time, but also across industries. |
| Keywords: | Insurance Premiums; Monte Carlo Integration; Non-Negativity Constraints; Return Attribution; Sharpe Style Analysis |
| JEL: | C3 G22 C01 |
| Date: | 2010–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:22516&r=ias |
| By: | Edward Hoyle; Lane P. Hughston; Andrea Macrina |
| Abstract: | We develop a non-life reserving model using a stable-1/2 random bridge to simulate the accumulation of paid claims, allowing for an arbitrary choice of a priori distribution for the ultimate loss. Taking a Bayesian approach to the reserving problem, we derive the process of the conditional distribution of the ultimate loss. The `best-estimate ultimate loss process' is given by the conditional expectation of the ultimate loss. We derive explicit expressions for the best-estimate ultimate loss process, and for expected recoveries arising from aggregate excess-of-loss reinsurance treaties. Use of a deterministic time change allows for the matching of any initial (increasing) development pattern for the paid claims. We show that these methods are well-suited to the modelling of claims where there is a non-trivial probability of catastrophic loss. The generalized inverse-Gaussian (GIG) distribution is shown to be a natural choice for the a priori ultimate loss distribution. For particular GIG parameter choices, the best-estimate ultimate loss process can be written as a rational function of the paid-claims process. We extend the model to include a second paid-claims process, and allow the two processes to be dependent. The results obtained can be applied to the modelling of multiple lines of business or multiple origin years. The multidimensional model has the attractive property that the dimensionality of calculations remains low, regardless of the number of paid-claims processes. An algorithm is provided for the simulation of the paid-claims processes. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1005.0496&r=ias |
| By: | Tanskanen , Antti J (Varma Mutual Pension Insurance); Niininen , Petri (Varma Mutual Pension Insurance); Vatanen, Kari (Varma Mutual Pension Insurance) |
| Abstract: | Sufficient solvency of a pension insurance company responsible for defined-benefit pensions guarantees that the pensions are paid regardless of turbulence in the financial market. In the Finnish occupational pension system TyEL, the required level of solvency capital (solvency limit) and its computation are specified in the statutes. Before the solvency limit can be determined, financial instruments must be classified into the five statutory asset classes based on risk. The solvency limit is computed on the basis of this classification and the average return, volatility and correlation parameters defined in the statutes. The solvency limit framework is formulated in the spirit of Markowitz portfolio theory and implicitly assumes that returns follow Gaussian distributions. This, however, is not actually the case with many – if not most – financial instruments. Similarly, it is not obvious how to handle illiquid assets, those with short time series, and which collection of financial instruments can be combined into a single asset (portfoliocation) for the purpose of classification. In this study, we propose two methods of handling these issues: (1) a decision tree-based method; and (2) a Bayesian method. We show how fat tails of return distributions are taken into account in the classification process, and how qualitative assessment of risks is combined with quantitative classification of financial assets. Coupled with suitable data transformations, both proposed methods provide efficient and suitable bases for asset classification in the TyEL pension scheme. |
| Keywords: | Bayesian methods; classification; solvency; non-Gaussian return distributions; TyEL occupational pension scheme |
| JEL: | C11 G22 G23 G28 G32 |
| Date: | 2010–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2010_009&r=ias |
| By: | Kim, Sung Teak (Asian Development Bank Institute) |
| Abstract: | This paper analyzes the impacts of the 1998 and 2008 financial crises on the Korean labor market. We study the historical background of the Korean Employment Insurance System and the change of labor policies from the 1998 Asian financial crisis to the current 2008 global financial crisis. While it is arguable to say that the expansion of the social welfare system in the Republic of Korea is main source of difference between the two crises, it is certain that the social welfare system is one of the influential factors that helped overcome the problems of the global financial crisis. From an analysis of the Korean experience on the two financial crises, we can deduce the following. First, financial stability at the national level is important to stabilize employment. Second, countries need to develop a social welfare system ahead of any economic crisis. Third, layoffs should be the last resort to lowering labor costs, even at a time of recession. Finally, cooperation and coordination among government departments are crucial to overcome the crisis in labor market. |
| Keywords: | korean labor market; financial crises |
| JEL: | I30 I38 J65 J68 |
| Date: | 2010–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0214&r=ias |