英文摘要 |
The capital in the property-liability insurance industry in Taiwan has increased dramatically in the last decade. However, the size of the insurance market in terms of premium volume has not increased commensurately and the return on equity has been decreasing in the same period. Literatures suggest that committing more capital could be beneficial since lower insolvency risk due to more capital could improve contractual terms with policyholders. However, it is also possible that higher capital is simply the result of allocative inefficiency of input resources. Therefore, the paper investigates the use of capital by insurers to provide evidence on whether the capital increase is the response to the demand for insurers’ solvency or the allocative inefficiency of input resources. If the increased capital is to enhance insurer’s financial strength, then more capital should lead to higher revenue efficiency and thus higher return on equity. Conversely, if the increased capital is simply the result of resources misallocation, then higher capital would have negative impact on revenue efficiency as well as return on equity. The data for the empirical test is the property-liability insurance companies in Taiwan from 1992 to 2001 when the capital of the industry increased dramatically. We use data envelopment analysis to derive the optimal capital an insurer should have, and use the optimal capital as a benchmark to measure the extent that the actual capital deviates from the optimal. The regressions are then conducted to investigate the relationship between the revenue efficiency and the extent of the deviation of the actual capital from the optimal capital, and the relationship between return on equity and the deviation of the actual capital from the optimal capital. The empirical evidences indicate that most insurers over-utilize capital, and the excessive capital has no significant impact on revenue efficiency. Thus, it suggests the overcapitalization represents allocative inefficiency in the industry. In addition, the over-utilization on capital also leads to lower return on equity, suggesting the allocative inefficiency penalizes the industry for holding too much capital. Overall, the paper provides empirical evidences showing that the higher capital in the last decade is not the industry’s response on the demand for insolvency. The result is consistent with the fact that policyholders do not seem to demand the solvency of property liability insurers given the existence of guaranty fund reduces the incentive of searching financially sound insurers, and further, no property-liability insurer has ever bankrupted so far. Instead, the empirical evidences suggest that higher capital is simply the result of allocative inefficiency of input resources. This leads to a series of issues surrounding the capital of the industry. Since the industry is generally overcapitalized, the cost of capital for the industry becomes an interesting topic. Also, how the industry utilizes the excessive capital is worth of further investigation since an efficient capital market would not tolerate the industry to keep excessive capital for too long while the return on capital deteriorates. Finally, the paper generally confirms that the industry is overcapitalized. Therefore, the problem facing the industry is no longer the deficiency of capital as indicated by Shiu and Wang (2002). Instead, the industry can now be characterized by the overcapitalization accompanied with sluggish growth of premium and deteriorating return on equity. |