Volume 8, Issue 2 -

This study contributes to the assessment of systemic risk for the insurance sector. We conducted two types of model approaches and scrutinized each insurer’s marginal systemic risk contribution to the entire Asia-Pacific insurance sector during the global financial crisis and thereafter. We applied the hypothetical distress insurance premium as a systemic risk measure by considering the “policyholder protection scheme” of each country and then incorporating the dynamic conditional correlation as the time-dependent, heterogeneous correlation parameter in the premium. Ping An Insurance (Group) Co. of China was only group in the Asia-Pacific region to be selected as a Globally Systemically Important Insurer (G-SII) in July 2013. Ping An Insurance was ranked first based on the marginal contribution of each insurer during the global financial crisis, and thereafter it was also ranked first based on recent data; therefore, we validated the G-SII’s selection. We propose these model approaches to be used in a mutually complementary manner as selection approaches for G-SIIs and risk management tools for insurers.

This study examines the socio-demographic determinants of household expenditures on life insurance in Malaysia. Cragg’s two-part regression model is applied to data of 20,313 sample households from the 2009–2010 Malaysian Household Expenditure Survey to examine the determinants of purchase decisions and expenditure level for life insurance. Results of marginal effects, segmented by ethnicity, suggest that while socio-demographic factors are important determinants of life insurance demand, the effects vary across ethnic groups in Malaysia. For instance, wealth and education levels are associated with purchase likelihoods and amount of life insurance premiums purchased across ethnic groups. However, household size, regional location, urbanicity, and occupation type are associated with life insurance demand within certain ethnic groups only. Based on these results, several observations are noted vis-à-vis the life insurance market in Malaysia.

This study attempts to analyze the relationship between corporate image and business operation of life insurance companies in Taiwan. Based on the performance indicators in underwriting and financial constructs, this study conducts regression analysis to find the influential factors for corporate image of life insurers. This study finds that both underwriting and financial operations have considerable impacts on the corporate image of life insurance companies. The results indicate that consumers evaluate the corporate image based on not only the financial performance but also the quality of underwriting management, such as services provided by the insurers. The company background (e.g. subsidiary of financial holding companies or foreign insurers) does not significantly influence the corporate image. The findings of this study suggest that the life insurance companies in Taiwan should pay more attention to the underwriting activities and service quality in order to enhance their corporate image.

An ageing population and the resulting income shortage of the aged are pressing problems in many countries across the world. In response, the Korean government set up the Farmland Bank to issue a new reverse mortgage, called farmland-backed annuity (FBA), to liquidize farmland assets and provide living expenses to aged farmers. In this study, we construct a suitable farmland price model for FBA. We also make a few proposals on designing FBA so that it meets the various needs of aged farmers. The results of this research would help the organization in charge of FBA to not only resolve the rural ageing problems but also contribute to strengthening the agricultural economy.

Continuing rapid changes in the level and pattern of mortality require that forecasts are available that are timely, relevant and reliable. This paper evaluates a previous forecast of the mortality and longevity of Australian seniors, both in terms of the validity of the chosen method – the Booth–Maindonald–Smith (BMS) variant of Lee–Carter – and the accuracy and reliability of the forecast itself. The validity of the method is assessed by a comprehensive review and evaluation of available methods, confirming BMS as the method of choice. The accuracy and reliability of the forecast is assessed by comparing it with actual experience and with a new forecast of period and cohort survival probabilities and life expectancies. The evaluation and the current forecast itself will inform the actuarial profession and wider industry in the areas of mortality and longevity risk as well as public debate and policy in population health and ageing.

There are many studies of optimal asset allocation with transaction costs in academic literatures. However, those are numerically solved for two-asset and three-asset cases. In contrast, the investment in five-asset classes (domestic bond and stock, international bond and stock, and cash) is at least required for practical pension fund management. Therefore, there are some real limitations to the continuous-time approach used in the previous literatures, which are the methods of solving the Hamilton-Bellman-Jacobi (HJB) equation for the stochastic control problem. In general, most investors use the rebalance rule with the no-trade ranges in practice which are constant and symmetric to the policy asset mix because it is easy to use the rule. In this paper, we propose the optimization model for the multiple asset allocation problem with transaction costs to determine the symmetric no-trade ranges of the policy asset mix using the derivative-free optimization (DFO) approach proposed by Hibiki et al. (2014). Specifically, we solve the five-asset problem with boundary constraints for cash for the Government Pension Investment Fund (GPIF) in Japan in a discrete-time and finite-period setting. We clarify the fact that we need to adjust the amounts of risky assets even within the no-trade range if the boundary constraints for cash are required, and we describe the simulation procedure in the discrete-time model. We examine the difference for various time intervals and horizons and conduct the sensitivity analysis for the various proportional transaction cost rates, the tracking error aversions, and the bounds for cash constraints. In addition, we compare the optimal time-dependent no-trade ranges with the constant no-trade ranges. The numerical results show the possibilities of applying the DFO model to the practical problem determining the symmetric no-trade ranges.