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Diversification and efficiency of life insurers in China and India

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Abstract

China and India are the world’s most populous and rapidly developing countries and are often discussed together. We examine life insurance firms in these two countries between 2008 and 2016 using a game cross-efficiency model, which comparatively measures insurers’ performance using Nash equilibrium weights. We investigate whether there is an optimal business model for three business dimensions: assets, funding and income. From our second-stage regressions we conclude that strategic focus is superior in terms of assets and income to diversification at the insurer level. At the capital market and economic levels, economic development, unemployment, stock market development and other variables are also important. Our study provides useful insights into how a business model can be made more efficient in large emerging markets.

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Notes

  1. According to Eling and Luhnen (2010b), the fields used to measure efficiency include distribution systems, financial and risk management/capital utilisation, general level of efficiency and evolution over time, intercountry comparisons, market structure, mergers, methodology issues, organisational form, regulatory change and scale and scope economies.

  2. Under DEA assumption, production frontiers are constructed via the envelopment of the DMUs, with the best practice DMUs forming the non-parametric frontier. The DMUs located in the frontier are estimated as fully efficient with efficiency scores equal to 1.

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Acknowledgements

This research was funded in part by the Grant of the University of Macau (File No. MYRG2019-00031-FBA) and the Science and Technology Development Fund, Macau SAR (File No. FDCT/027/2016/A1). We thank the referees for their detailed comments, which improved the presentation of the paper.

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Peng, L., Lian, Z. Diversification and efficiency of life insurers in China and India. Geneva Pap Risk Insur Issues Pract 46, 710–730 (2021). https://doi.org/10.1057/s41288-020-00181-8

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