An Economic Analysis of Life Insurance Company Expenses
This study provides an economic analysis of life insurance company expenses and develops a methodology for the construction of benchmark expense factors. These benchmarks can facilitate the pricing of new business, cost control within companies, and expense comparisons among companies. We derive the expense factors by estimating a cost function wherein total general expenses are modeled as a function of input prices and physical outputs, and the physical outputs are proxies for the cost drivers of the different lines of business. This methodology has two important advantages: first, the derived expense factors are independent of the methods that insurers use in allocating total expenses across lines of business. Second, the estimated cost function explicitly accounts for different degrees of economies of scale and consequently in the present value of marginal expenses across insurers. Hence, this study demonstrates that economies of scale and, in turn, size must be considered when constructing an expense table.
Life insurance companies, company expenses, benchmarks, expense factors, cost function, economies of scale
Accounting | Corporate Finance | Insurance
Corporate Governance, Auditing and Risk Management
North American Actuarial Journal
Taylor and Francis
An Economic Analysis of Life Insurance Company Expenses. (2002). North American Actuarial Journal. 6, (2), 81-94. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/812
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