Abstract
This study aims to analyse the effects of the General Agreement on Trade in Services (GATS) on the investment activities of the Pakistani insurance sector. First, we analyse the impact of GATS on the overall and company-wise return on investment of the insurance sector of Pakistan. In a panel data setting, the traditional fixed and random effect models are unsuitable for dealing with the possible issues, including endogeneity, unobserved heterogeneity, profit persistency, and the correlation between lagged dependent variables and independent variables. Therefore, we apply the Generalised Method of Moments (GMM) system estimator to the panel data from 1984 to 2018. In the Arellano-Bond framework, the estimated results indicate that the overall investment returns of the Pakistani insurance sector have increased after the GATS membership. However, company-wise analysis reveals mixed evidence. The average returns of IGI Insurance Limited and EFU General Insurance Limited have increased significantly after the GATS membership. These results support one of our empirical conjectures that a rising tide lifts some boats more than it does others. Then, we apply Markowitz’s Portfolio Theory to estimate the portfolio returns and the associated risk using the financial statements data from 1984 to 2018. The estimates of portfolio analysis reveal that the portfolio returns of the Pakistani insurance sector improve by 6.70 percentage points after the membership. However, the associated portfolio risk also increases by 11.13 percentage points, 7.40 times higher than the Pre-GATS risk. Despite the better returns, there is an intensive increase in investment volatility after GATS membership. This study provides a valuable reference for insurance managers and the Ministry of Finance and Securities & Exchange Commission of Pakistan to control and improve the insurance sector’s performance in Pakistan.
Acknowledgements
We are grateful to anonymous referees for their insightful comments. We also acknowledge feedback and comments offered by Professor Mohamed Nasr, CGA.
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Articles in the same Issue
- Frontmatter
- Featured Articles (Research Paper)
- Are Stay-at-Home and Face Mask Orders Effective in Slowing Down COVID-19 Transmission? – A Statistical Study of U.S. Case Counts in 2020
- The Impact of GATS on the Insurance Sector: Empirical Evidence from Pakistan
- Processing of Information from Risk Maps in India and Germany: The Influence of Cognitive Reflection, Numeracy, and Experience
- The Determinants of Credit Rating and the Effect of Regulatory Disclosure Requirements: Evidence from an Emerging Market
- Automatic Segmentation of Insurance Rating Classes Under Ordinal Constraints via Group Fused Lasso
Articles in the same Issue
- Frontmatter
- Featured Articles (Research Paper)
- Are Stay-at-Home and Face Mask Orders Effective in Slowing Down COVID-19 Transmission? – A Statistical Study of U.S. Case Counts in 2020
- The Impact of GATS on the Insurance Sector: Empirical Evidence from Pakistan
- Processing of Information from Risk Maps in India and Germany: The Influence of Cognitive Reflection, Numeracy, and Experience
- The Determinants of Credit Rating and the Effect of Regulatory Disclosure Requirements: Evidence from an Emerging Market
- Automatic Segmentation of Insurance Rating Classes Under Ordinal Constraints via Group Fused Lasso