Influencing Factors of Corporate Performance of Life Insurance Companies – Evidence from China

Abstract

At present, the life insurance industry in China is still in the initial stage of development, which is characterized by limited scale, low penetration rate and low intensity. However, the large population base, the proliferation of middle classes, and the continuously improving socio-economic environment in China imply underlying developmental opportunities for the life insurance industry. Gaps in state pension have appeared owing to the issue of aging population, which signals that insurance companies with commercial properties may become an integral part of resident endowment. Ever since 2014, Chinese government has implemented numerous policies that are beneficial to the life insurance industry, for instance, diversifying investment channels of premiums, allowing a certain proportion of premiums in risky investments, and removing the restriction that the rate of return on common stakeholders’ equity (ROE) of participating insurance is capped at 5%. This paper constructs a panel data of 36 Chinese life insurance companies from 2010 to 2014. A serial of preliminary tests are taken in order to avoid spurious regression. By dint of the fixed effect model and panel threshold model, the paper analyzes the relation between operation-related factors and the corporate performance of life insurance companies. According to empirical findings, bancassurance income rate, professional insurance agency income rate, participating insurance income rate, group insurance income rate, company scale and solvency adequacy ratio are negatively correlated with corporate performance. When life insurance companies are associated with banks in capitals, bancassurance income rate positively influences corporate performance. The paper also investigates the impact of specific marketing channel structure and product structure on corporate performance. Policy implications are proposed accordingly.