The number of insurance company has grown rapidly in Taiwan due to insurance deregulation since 1992. The main challenge insurance industry face is the declination of profit due to the increasing of competitors. The operator of insurance company is able to face this question and offer the solution, then a company has better solvency. So we explore two issue, one is to investigate the relationship between asset risk and capital adjustment decision in Taiwan¡¦s life insurance industry from 1993 to 2005, and the other is to provide some empirical evidences of retention limit of excess of loss reinsurance in Taiwan¡¦s property insurance industry. In the first issue, a life insurance company is in less risk and has better solvency when it has more capital or higher ratio of capital; however, this also brings higher opportunity cost which means in long run, the average profit will be lower. There is no conclusion how to balance the relationship between capital adjustment and risk taking decision in life insurance industry though this topic is intensively discussed these days. Therefore, with the methodology of panel data threshold regression, we divide life insurance companies into two categories according to ¡§life insurance and annuity insurance premiums to total premiums ratio¡¨. One is life insurance Company of indemnification, and the other is the one of savings. In conclusion, we identify the negative correlation between capital ratio and risk of life insurance company of indemnification and the positive correlation between capital ratio and risk of life insurance company of savings. In the second issue, because of the increase of natural disaster in Taiwan recently, the property insurance company has to face what the reinsurance companies are not willing to underwriter, so excess of loss reinsurance has become the viable solution in Taiwan¡¦s property insurance industry. We apply extreme value theory to the tail of Taiwan property insurance claim for VaR estimation and calculate retention limit of excess of loss reinsurance. The empirical results show that the distribution of Taiwan property insurance claim is fat-tailed. We suggested using Generalized Pareto Distribution (GPD) to model the data with extreme loss and conclude retention limit of excess of loss reinsurance.

This dissertation thesis address how aggregate shocks affect insurance firms' risk management and asset investment decisions as well as the impact of these decisions on insurance prices and regulation. The first chapter develops a signaling model to examine how insurance firms choose among retention, reinsurance and securitization especially for catastrophe risks. The second chapter examines the determination of insurance prices in an integrated equilibrium framework where insurers' assets may be subject to both idiosyncratic and aggregate shocks. The third chapter presents an empirical analysis of the hypothesized impacts of internal capital and asset risk on insurance prices as predicted by the results of the second chapter. The last chapter investigates the optimal design of insurance regulation to achieve the Pareto optimal asset and liquidity management by insurers as well as risk sharing between insurers and insurees. Chapter 1 provides a novel explanation for the predominance of retention and reinsurance relative to securitization in catastrophe risk transfer using a signaling model. An insurer's risk transfer choice trades off the lower signaling costs of reinsurance against the additional costs of reinsurance stemming from sources such as their market power, higher cost of capital relative to capital markets, and compensation for their monitoring costs. In equilibrium, the lowest risk insurers choose reinsurance, while intermediate and high risk insurance choose partial and full securitization, respectively. An increase in the loss size increases the average risk of insurers who choose securitization. Consequently, catastrophe risks, which are characterized by low frequency-high severity losses, are only securitized by very high risk insurers. Chapter 2 develops a unified equilibrium model of competitive insurance markets where insurers' assets may be exposed to idiosyncratic and aggregate shocks. We endogenize the relationship between insurance prices and insurers internal capital that potentially reconcile the conflicting predictions of previous theories that investigate the relation using partial equilibrium frameworks. Equilibrium effects lead to a non-monotonic U-shaped relation between insurance price and internal capital. Specifically, the equilibrium insurance price first decreases with a positive shock to the internal capital when it is below certain threshold level, and then increases with a positive shock the internal capital when it is above the threshold level. Further, we also derive another testable implication that an increase in the asset default risk increases the insurance price and decrease the insurance coverage. Chapter 3 studies the property and casualty insurance industry in periods from 1992 to 2012 based on the aggregate level of NAIC data. We show that the insurance price decreases with an increase in the surplus of insurance firms at the end of the previous year when the surplus is lower than 8.5 billion, and then increase when the surplus is higher than 8.5 billion. Our results provide support for the hypothesis of a U-shaped relationship between internal capital and insurance price. Our results also provide evidence for the positive relationship between asset portfolio risk and insurance price. Chapter 4 studies the effects of aggregate risk on the Pareto optimal asset and liquidity management by insurers as well as risk-sharing between insurers and insurers. When aggregate risk is low, both insurers and insurers hold no liquidity reserves, insurees are fully insured, and insurers bear all aggregate risk. When aggregate risk takes intermediate values, both insurees and insurers still hold no liquidity reserves, but insurers partially share aggregate risk with insurers. When aggregate risk is high, however, it is optimal to hold nonzero liquidity reserves, and insurees partially share aggregate risk with insurers. The efficient asset and liquidity management policies as well as the aggregate risk allocation can be implemented through a regulatory intervention policy that combines a minimum liquidity requirement when aggregate risk is high, "ex post" contingent on the aggregate state, comprehensive insurance policies, and reinsurance.

Statistical inference is a tool for creating models that can accurately display real-world events. Special importance is given to the financial methods that model risk and large price movements. A parameter that describes tail heaviness, and risk overall, is α. This research finds a representative distribution that models α. The absolute value of standardized stock returns from the Center for Research on Security Prices are used in this research. The inference is performed using R. Approximations for α are found using the ptsuite package. The GAMLSS package employs maximum likelihood estimation to estimate distribution parameters using the CRSP data. The distributions are selected by using AIC and worm plots. The Skew t family is found to be representative for the parameter α based on subsets of the CRSP data. The Skew t type 2 distribution is robust for multiple subsets of values calculated from the CRSP stock return data.

Submitted by Cristiane Oliveira (cristiane.oliveira@fgv.br) on 2011-05-26T13:10:51Z No. of bitstreams: 1 71070100742.pdf: 1357936 bytes, checksum: 317ce99e12150f05d086d02057a7e979 (MD5) / Approved for entry into archive by Suzinei Teles Garcia Garcia(suzinei.garcia@fgv.br) on 2011-05-26T15:01:17Z (GMT) No. of bitstreams: 1 71070100742.pdf: 1357936 bytes, checksum: 317ce99e12150f05d086d02057a7e979 (MD5) / Approved for entry into archive by Suzinei Teles Garcia Garcia(suzinei.garcia@fgv.br) on 2011-05-26T15:03:06Z (GMT) No. of bitstreams: 1 71070100742.pdf: 1357936 bytes, checksum: 317ce99e12150f05d086d02057a7e979 (MD5) / Made available in DSpace on 2011-05-26T17:18:19Z (GMT). No. of bitstreams: 1 71070100742.pdf: 1357936 bytes, checksum: 317ce99e12150f05d086d02057a7e979 (MD5) Previous issue date: 2011-04-15 / This dissertation aims to examine the factors that drive the bank decision process of capital/investment structure and to evaluate the effectiveness of regulatory intervention in Brazil. This study is divided into three chapters. The first chapter presents, in a systematic fashion, the theoretical and empirical literature to explain the financing and investment decisions of a heavily regulated banking firm. It also describes the evolution of international standards of prudential capital regulation, since the publication of the first Basel Accord until the initial steps of Basel III, and the regulatory scenario in Brazil. The second chapter, through a dynamic model of the trade-off theory, analyzes the determinants of Brazilian banks‟ capital buffer between 2001 and 2009, suggesting that: (i) regulatory capital requirements and adjustment costs may influence banks decisions; (ii) supervisory authority evaluations may impact capital buffers; (iii) market discipline may not being effective in improving bank solvency; and (iv) there is a negative relationship between the buffer and business cycle, which may represent a pro-cyclical bank’s capital management. Finally, the third chapter uses supervisory authority ratings (CAMEL) to provide evidences that the supervisory and regulatory pressures induce banks in Brazil to undertake downwards short term adjustments in leverage and also in portfolio risks. / Esta tese tem por objetivo examinar os fatores que direcionam o processo decisório de estrutura de capital/investimento do banco e avaliar a efetividade da intervenção regulatória no Brasil. O trabalho está divido em três capítulos. No primeiro capítulo, apresenta-se, de forma sistematizada, arcabouço teórico e evidências empíricas na literatura para explicar o comportamento da firma bancária, fortemente regulada, em suas decisões de financiamento e investimento. Além disso, descreve-se a evolução dos padrões internacionais de regulação prudencial de capital, desde a publicação do primeiro Acordo de Basiléia até as medidas iniciais de Basiléia III, apresentando também o contexto normativo no Brasil. No segundo capítulo, por meio de modelo dinâmico da teoria de trade-off, analisam-se os determinantes do buffer de capital dos bancos brasileiros entre 2001 e 2009. Os resultados sugerem que: (i) o requerimento regulatório de capital e os custos de ajustes de capital influenciam nas decisões dos bancos; (ii) as avaliações da autoridade de supervisão bancária impacta os colchões de capital; (iii) a disciplina de mercado pode não ser efetiva em aumentar a solvência dos bancos; e (iv) existe uma relação negativa entre o colchão de capital e o ciclo de negócios que pode representar uma gestão procíclica de capital dos bancos. Por fim, no terceiro capítulo, utiliza-se metodologia proprietária dos escores das instituições conferidos pela autoridade supervisora (CAMEL), para apresentar evidências de que as pressões regulatória e de supervisão no Brasil induzem os bancos a realizarem ajustes de curto prazo relativamente menores na alavancagem e, principalmente, no risco do portfólio.

我國監理機關為強化保險公司之財務能力，有效監管保險公司之風險狀況，特於2003年7月9日，正式引進美國風險基礎資本額制度(Risk-Based Capital, RBC)，作為監理保險公司清償能力之工具。RBC制度除了改善單一資本額規定的缺失外，亦反映了保險公司之經營風險，對於保險公司面臨風險所需資本有較妥適的規範。讓監理機關得以藉此工具發現體質較弱之保險公司，進而採取適當之行動。 本文檢視我國壽險公司在RBC制度前後，資本與風險間之關係。探討RBC制度實施後，對於我國壽險公司之資本比例、資產風險以及產品風險是否確實造成改變，能使壽險公司之資本提列與公司風險大小有一正向搭配，在保險公司面臨越高的風險狀態時，願意提列更多資本做為緩衝，以保障公司安全。藉此分析觀察RBC是否達到預期之功能，以作為我國監理機關實行RBC制度之參考。 本文使用聯立方程式部分調整模型，以二階段最小平方法進行檢測。實證結果發現，在RBC制度實施後，壽險公司之資本比例對資產風險以及產品風險具有顯著負向關係，顯示資本比例低者所承擔之風險較高，而資本比例高者風險較低。此外，公司規模以及公司型態對於壽險公司之資本與風險具有顯著影響力，外商壽險公司之資產風險較本土壽險公司為低。 / Risk-based capital (RBC) has been implemented as an important regulatory tool for the insurance industry in Taiwan since year 2003, which is used to strengthen the financial capability and to predict the probability of insolvency. It not only improves the shortcomings of single capitalization index but also reflects the business risks. Moreover, it lets the regulator be able to apply this tool to discover the insurance companies with weak financial management and take the suitable actions. This paper explores the changes on the capital ratio, asset risk and product risk in life insurance industry in Taiwan before and after the RBC regulation and verifies if the implementation of RBC had a positive effect on the relationship between capital and risks. To examine this issue, this study uses a simultaneous-equation partial-adjustment model with two-stage least squares method. The results suggest that the life insurers with lower capital ratio take higher asset risk and product risk, while life insurers with higher capital ratio take lower asset risk and product risk. For life insurers, company size and type also have an important impact on their capital and risks. The empirical finding shows that there is lower asset risk in the international insurers than domestic insurers.

我國保險業監管制度之實施，以2003年7月之RBC制度影響最為重大，因此本研究希望檢驗RBC制度對於壽險公司之經營策略，是否有顯著之改變，而保險公司之經營策略中，又以資產配置與產品組成為最重要的議題，兩者將影響資產風險與產品風險。因此本研究將重點聚焦於壽險公司之資產風險與產品風險於RBC制度實施前後之變化，藉以探討是否RBC制度實施後，保險公司對於經營中涉入風險之行為，保有更穩健之思維，而不違反RBC制度實施立意之良好。 本研究整理我國25間壽險公司之財、業務之資料為分析基礎，並以簡單複迴歸之研究方法為實證分析。實證結果中，壽險公司於RBC制度實施後有風險抵換之情形，但無論資產風險及產品風險都與前期資本比例為負向關係。另外，小型公司中資本比例越低者，有增加投資於高風險資產的比例；並且小型公司中，前一期經營結果越差，銷售越高風險產品的比例將會上升。 / One of the most important supervision system in insurance industry is the implementation of Risk-Based Capital system in 2003 in Taiwan. In this study, we examine whether the business strategy of life insurance companies changes significantly because of the implementation of RBC system. In insurance’s business strategy, asset allocation and product composition are the main issues and both will influence asset risk and product risk. Hence, we focus on the changes in asset risk and product risk to find that whether life insurance companies have more stable operating concepts after the implementation of RBC system. We use multiple regression model to analyze the relationship between asset risk, product risk and capital ratio of the life insurance companies. The results suggest that there are a negative relationship between asset risk, product risk and capital ratio after the implementation of RBC. Besides, the small size companies which have low capital ratio will tend to increase the proportion of risky assets in their investment. And small size companies which have worse operating outcomes in the previous year will increase the proportion of high-risk products they sell in current year.