The importance of efficiency for life insurer profit regarding Canadian life insurers

Abstract

Purpose- This study examines 1) how the efficiency of life insurers influences their profits, 2) the influence of exogenous variables such as debt ratio on profits and 3) the critical phenomenon of how feasible it is for a life company to improve its profits via efficiency improvements versus changing other characteristics of its business. Methodology- This study uses stochastic frontier analysis along with data from Canadian life insurers to calculate the required efficiency values along with the above effects and possibilitie Findings- The results are that it is much easier for life insurers to increase profit via efficiency improvements versus improving other business aspects that it can control such as debt ratio or percent of new business written. Conclusion- The results point to the key conclusion that to increase profit, or regain the profit lost due to inefficiency, for the most part and conceivably totally the best, easiest and quite possibly only way for life insurance companies to influence their profit is through improving their efficiency, especially in the vital long-term Keywords: Life ınsurance, efficiency, profit, stochastic frontier analysis, exogenous variables JEL Codes: G22, H21, G28