What is it about?
This study investigated cost inefficiencies and its relationship with value drivers of insurers in United Arab Emirates (UAE).
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Why is it important?
The study revealed that there were 21–33% cost inefficiencies in these insurers under different model specifications of stochastic frontier and DEA; value drivers such as lower leverage risk, lower capital risk significantly improved cost efficiencies consistent with Basel II norms; ROE positively influenced cost efficiencies with further trade off between increased profit margin, decreased asset utilization and/or reduced equity multiplier by the insurer managements to achieve a target‐ROE; and the trend of cost efficiency was improving during 2000–2004.
Perspectives
The study suggests that stock insurers could overcome their cost inefficiencies through adoption of efficient measures such as risk mapping of clients, risk prioritization besides ALM techniques. The study has direct implications for individual and institutional investors in making their portfolio investment decisions in insurance sector, policymakers, and regulators to closely monitor inefficient insurers consistent with Basel II norms.
Dr Ananth Rao
University of Dubai
Read the Original
This page is a summary of: Cost efficiency and value driver analysis of insurers in an emerging economy, Managerial and Decision Economics, June 2009, Wiley,
DOI: 10.1002/mde.1454.
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