nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒08‒31
seven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Employment Insurance and the Business Cycle By Pollak, Andreas
  2. Unfounded optimism: The danger of FHA's mispriced unemployment risk By Joseph Gyourko; gyourko
  3. The Determinants of Microinsurance Demand By Eling, Martin; Pradhan, Shailee; Schmit, Joan T.
  4. Common correlated effects and international risk sharing By Peter Fuleky; Luigi Ventura; Qianxue Zhao
  5. A DuPont Analysis on Insurance Sector of South Asian Region By Raza, Syed Ali; Jawaid, Syed Tehseen; Adnan, Muhammad
  6. Are leveraged and inverse ETFs the new portfolio insurers? By Tugkan Tuzun
  7. Financial inclusion for financial stability : access to bank deposits and the growth of deposits in the Global Financial Crisis By Han, Rui; Melecky, Martin

  1. By: Pollak, Andreas
    Abstract: This paper quantitatively investigates the scope for improving welfare by making aspects of the unemployment insurance (UI) system depend on the state of the business cycle. A particular focus is the Canadian system of "Employment Insurance" (EI), which is designed in such a way that the generosity of benefits depends on the state of the macroeconomy. Simulations of a life-cycle model with heterogeneous agents and search frictions confirm the expectation that optimal UI systems are characterized by a substantial increase in generosity during recessions, when adverse labour market conditions reduce the importance of moral hazard while increasing the need for consumption insurance. It turns out, however, that the welfare improvements resulting from this sort of temporal differentiation of benefits are extremely small. The insurance against business cycle effects inherent in the Canadian EI system is welfare enhancing when considered in isolation; this insurance effect is, however, dominated by the welfare implications of the inter-regional redistribution effected by the system.
    Keywords: unemployment insurance; job search; business cycle
    JEL: E3 J6
    Date: 2013–08–13
  2. By: Joseph Gyourko; gyourko
    Abstract: Drawing on original risk analysis, Wharton School professor Joseph Gyourko explains why FHA's failure to accurately account for the unemployment risk in its Single-Family Mutual Mortgage Insurance Fund is a key cause of its increasing share of seriously delinquent loans and the insolvency of its main insurance fund.
    Keywords: unemployment,Mutual Mortgage Insurance Fund,Mortgage Bankers Association,housing bailout,FHA
    JEL: A G R
    Date: 2013–04
  3. By: Eling, Martin; Pradhan, Shailee; Schmit, Joan T.
    Abstract: The purpose of this article is to structure the extant knowledge on the determinants of microinsurance demand and to discuss unresolved questions that deserve future research. To achieve this outcome, we review the academic literature on microinsurance demand published between 2000 and early 2013. The review identifies 12 key factors affecting microinsurance demand: price, wealth, risk aversion, non-performance risk, trust and peer effects, religion, financial literacy, informal risk sharing, quality of service, risk exposure, age, and gender. We discuss the evidence of how each of these 12 factors influences demand, both within the microinsurance and the traditional insurance markets. A comparison with traditional markets shows an unexpected (negative) effect of risk aversion on microinsurance demand, with trust perhaps being the intervening factor. Other relevant results include the importance of liquidity (and/or access to credit), informal risk sharing, and peer effects on the decision to buy microinsurance. The influence of trust on insurance take-up and the unanticipated results for risk aversion are fertile areas for future research.
    Keywords: Microinsurance, insurance, demand, enrolment, participation, take-up.
    Date: 2013–06
  4. By: Peter Fuleky (UHERO, University of Hawaii at Manoa); Luigi Ventura (Department of Economics and Law, Sapienza, University of Rome); Qianxue Zhao (UHERO, University of Hawaii at Manoa)
    Abstract: Existing studies of risk pooling among groups of countries are predicated upon the highly restrictive assumption that all countries have symmetric responses to aggregate shocks. We show that the conventional risk sharing test fails to isolate idiosyncratic fluctuations within countries and produces spurious results. To avoid these problems, we propose an alternative form of the risk sharing test that is robust to heterogeneous country characteristics. In our empirical example, we provide estimates using the proposed approach for various groupings of 158 countries.
    Keywords: Panel data, Cross-sectional dependence, International risk sharing, Consumption insurance
    JEL: C23 C51 E21 F36
    Date: 2013–03
  5. By: Raza, Syed Ali; Jawaid, Syed Tehseen; Adnan, Muhammad
    Abstract: This research is to examine that most of the time investors do not prefer to highly profitable companies. We investigate the DuPont equation on insurance sector of South Asian region. Through DuPont analysis we see which types of companies are most fruitful for investor. We are using two method of ranking, first one is base on profit (Net income) and second one is base on DuPont equation. After that we see impact of independent variables (Return on asset & financial leverage) on dependent variable (return on equity) by regression analysis. The result shows that the ranking according to DuPont method are more reliable for investors as compare to profit (net income). The finding of this paper is that investor should work on effort method as judge against to effect method.
    Keywords: Net income, Profit Margin, Asset Turnover, Financial Leverage, DuPont technique.
    JEL: G2 G22
    Date: 2013–08–11
  6. By: Tugkan Tuzun
    Abstract: This paper studies Leveraged and Inverse Exchange Traded Funds (LETFs) from a financial stability perspective. Mechanical positive-feedback rebalancing of LETFs resembles the portfolio insurance strategies, which contributed to the stock market crash of October 19, 1987 (Brady Report, 1988). I show that a 1% increase in broad stock-market indexes induces LETFs to originate rebalancing flows equivalent to $1.04 billion worth of stock. Price-insensitive and concentrated trading of LETFs results in price reaction and extra volatility in underlying stocks. Implied price impact calculations and empirical results suggest that they contributed to the stock market volatility in the 2008-2009 financial crisis and in the second half of 2011 when the European sovereign debt crisis came to the forefront. Although LETFs are not as large as portfolio insurers of the 1980s and have not been proven to disrupt stock market activity, their large and concentrated trading could be destabilizing during periods of high volatility.
    Date: 2013
  7. By: Han, Rui; Melecky, Martin
    Abstract: In crisis times, depositors get anxious, can run on banks, and withdraw their deposits. Correlated withdrawals of bank deposits could be mitigated if bank deposits are more diversified, that is, held by more individuals. This paper examines the link between the broader access to bank deposits prior to the 2008 crisis and the dynamics of bank deposit growth during the crisis, while controlling for relevant covariates. Employing proxies for access to deposits and the use of bank deposits, the authors find that greater access to bank deposits can make the deposit funding base of banks more resilient in times of financial stress. Policy efforts to enhance financial stability should thus not only focus on macroprudential regulation, but also recognize the positive effect of broader access to bank deposits on financial stability.
    Keywords: Debt Markets,Banks&Banking Reform,Access to Finance,Deposit Insurance,Emerging Markets
    Date: 2013–08–01

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