nep-ias New Economics Papers
on Insurance Economics
Issue of 2020‒05‒25
three papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. The Potential Capital Requirement for a Minimum Prices Insurance Scheme for Wheat, Maize, and Rape Seed By Thomas Url; Serguei Kaniovski
  2. Are doctors better health ministers? By Pilny, Adam; Rösel, Felix
  3. The Informational Content of Default Risk in UK Insurance Firms By Mario Cerrato; Paolo Coccorese; Xuan Zhang

  1. By: Thomas Url (WIFO); Serguei Kaniovski
    Abstract: In 2005 the EU lowered the guaranteed minimum prices for crops in its Common Agricultural Policy and stopped market interventions. Consequently, prices started to fluctuate more intensively, and farmers' incomes are now subject to higher price volatility. A crop price insurance scheme could provide an interesting instrument to stabilise the income of European farmers. We analyse the premium level and capital requirement of a hypothetical insurance contract covering several combinations of minimum prices for a bundle of wheat, maize, and rape seed. The premium level is based on the Black option pricing model and a Bayesian autoregressive stochastic volatility model. Monte Carlo simulated forecasts provide estimates for expected variances and a profit-loss distribution for various combinations of minimum prices. The required solvency capital to keep the insurance business afloat at the 1 percent ruin probability creates capital costs exceeding the expected profit.
    Keywords: crop insurance program, option pricing, time varying volatility
    Date: 2020–05–12
  2. By: Pilny, Adam; Rösel, Felix
    Abstract: Appointing or electing professionals to be public officials is a double-edged sword. Experts can use their rich knowledge to implement reforms, but they can also favor their own profession. In this study, we compare physician-trained state health ministers to ministers of other professions in Germany during 1955-2017. German state health ministers have great power to determine hospital capacities and infrastructure. Our results show that physician-trained health ministers increase hospital capacities, capital, and funding by the statutory health insurance (SHI). This prompts hospitals to hire more physicians, but with little impact on hospital outputs. As a result, total factor productivity (TFP) growth in hospital care slows down substantially under physician-ministers. At the same time, job satisfaction of hospital doctors tends to increase. We conclude that, in particular, the medical profession benefits from medical doctors in office.
    Keywords: Hospitals,health minister,productivity,TFP,favoritism,profession,technocracy
    JEL: D72 I11 I18 O47 P16
    Date: 2020
  3. By: Mario Cerrato; Paolo Coccorese; Xuan Zhang
    Abstract: “Historically, insurers have made money in two ways – returning an underwriting profit and investing premiums and making money on the investment returns.” By Nick Kitchen, Head of Technical Casualty and Motor Lines, Zurich Insurance plc. In this paper, we use a novel data-set of UK public and non-public insurance companies for the period 1985-2014 in order to investigate the empirical relationship between firms’ specific characteristics and default risk. We employ a portfolio approach, and after splitting firms’ returns into underwriting and investment returns, we find evidence that default risk is closely related to size and reinsurance activities, especially for small size firms, and that such firms are much less risky than large firms and earn the highest return when their default risk is low. Some policy implications are also provided.
    JEL: G23 G20 G28
    Date: 2020–02

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