Efficiency and profitability in the global insurance industry

Martin Eling and Ruo Jia

Pacific-Basin Finance Journal, 2019, vol. 57, issue C

Abstract: We examine the relationship between firm efficiency (E) and profitability (P) with a global dataset of over 5000 insurance companies. Consistent with previous studies in banking and insurance, we document a significantly positive correlation between the efficiency measures and profitability measures. Beyond the extant evidence, we find significant industry dependency in the E-P relationship driven by industry idiosyncrasies, whereas efficiency is more critical to the profitability of life insurers than to that of nonlife insurers. We also show that the E-P relationship is nonlinear: the marginal impact of efficiency on profitability decreases as the insurer's efficiency is close to the best practice.

Keywords: Insurance; Data envelopment analysis (DEA); Frontier efficiency analysis; Firm performance; Industry dependency (search for similar items in EconPapers)
JEL-codes: G22 L21 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18306462

DOI: 10.1016/j.pacfin.2019.101190

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