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Consolidation and Efficiency in the U.S. Life Insurance Industry

John Cummins (), Sharon Tennyson and Mary Weiss

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: This paper examines the relationship between mergers and acquisitions, efficiency, and scale economies in the US life insurance industry. We estimate cost and revenue efficiency over the period 1988-1995 using data envelopment analysis (DEA). The Malmquist methodology is used to measure changes in efficiency over time. We find that acquired firms achieve greater efficiency gains than firms that have not been involved in mergers or acquisitions. Firms operating with non-decreasing returns to scale and financially vulnerable firms are more likely to be acquisition targets. Overall, mergers and acquisitions in the life insurance industry have had a beneficial effect on efficiency.

Journal of Economic Literature classification codes: G2, G22, G34. L11.

Key Words: Efficiency, life insurance, mergers and acquisitions, scale economies, data envelopment analysis.

Date: 1998-05
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Related works:
Journal Article: Consolidation and efficiency in the US life insurance industry (1999) Downloads
Working Paper: Consolidation and efficiency in the U.S. life insurance industry (1998)
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