Sources of risk in insurance markets
Date
2021
Authors
Dladla, Pholile
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Abstract
This thesis focuses on insurance risk management in select developed and emerging market
economies, the impact of macroeconomic factors on insurance and bank risk, insurance share
returns and the linkages between banks and insurances over the period 1988-2017. The thesis is
divided into five chapters and three of them are empirical. Chapter 1 is the introduction.
Chapters 2, 3 and 4 are empirical chapters examining the impact of macroeconomic factors on
various risk indicators of insurance companies and banks. Chapter 5 concludes by highlighting the
key issues and giving policy recommendations.
In chapter 1, we provide a layout of the background, research problem, objectives, and
contributions of the study and the methodologies of each empirical chapter. Chapter 2 examines
the macroeconomic determinants of insurance risk indicators for life and non-life insurance
companies, in both the developed and emerging market economies. We use a linear
consumption-based and a profit maximization model to theoretically derive the determinants of
risk indicators. Our derivation is based on the utility and profit function. The results show that the
most influential macroeconomic variables, on insurance risks, are exchange rates, interest rates
and the variable on the consumption of other goods, across all countries in both the life and non life subsectors.
Chapter 3 investigates the sensitivity of the share returns of life and non-life insurance companies
to macroeconomic variables. We use a single linear equation to estimate the sensitivity of
insurance company returns to these variables. We extend the Dladla and Malikane (2018) and
Berendes et al. (2013) models by incorporating other macroeconomic variables through the Taylor
rule. The main results highlight that most macroeconomic variables have a weak effect on the
share returns of insurers, with the exception of interest rates, which plays a leading role.
Chapter 4 analyses the linkages between bank and insurance risk measures, the potential
common drivers of these risks as well as the causal relationship between these risks. The results
show that firstly, there are linkages between banks and insurance risk variables, with the most
notable link being between banks and non-life insurers. Secondly, GDP, long-term interest rates
and exchange rates are the common drivers of risk in these two sectors. Lastly, that bank have the
most notable spillover effects on insurance, in both life and non-life, as such banks risk variables
contain useful information for predicting insurance risk variables.
Chapter 5 is the conclusion. We provide a summary of the k e y issues covered, the main
findings and the policy recommendations. We also suggest areas of future research
Description
A thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy to the Faculty of Commerce, Law and Management, School of Economics and Finance, University of the Witwatersrand, Johannesburg, 2021