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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

COPY RIGHT © 2012 Institute of Interdisciplinary Business Research

12

DECEMBER 2012

VOL 4, NO 8

EMPIRICAL ANALYSIS OF THE OPERATING EFFICIENCY OF

CHINA'S INSURANCE INDUSTRY

WU SONG, CAO ZHENGYONG, QIN KUN, LANG WEI，

ZHANG RONG

Abstract

This article uses data of China's insurance industry from 2004 to 2009, and a single stage

stochastic frontier model to assess the efficiency of China's insurance industry profits, and

empirical analysis of the insurance industry economy of scale. Research found that the insurance

industry Chinese general insurance enterprise of the average profit efficiency than a foreign

general insurance enterprise, life insurance and foreign capital of Chinese life insurance average

profit efficiency are not significant. From the trend, Chinese life insurance companies and

Chinese general insurance enterprise performance are short of scale economy, while foreign life

insurance and foreign general insurance enterprise scale economy are obvious and steady. The

above findings for future ascension of the efficiency of the insurance industry, strengthen the

insurance system of the stable and the adaptability and resist the ability of the risk has the

important enlightenment.

Keywords：SFA; Profit Efficiency; Economies of Scale

1. Introduction

In the past 30 years, China's insurance market has undergone profound and complex changes,

China 's average annual GDP growth rate of 9% for high efficiency operation of the insurance

industry to provide a solid macroeconomic foundation to maintain an average annual growth rate

of about 30% of the insurance industry, become one of the fastest growing industries in the

national economy. With the changing market environment and the rapid development of the

insurance business, the insurance market subject to rapid growth, there are 146 insurance

companies in 2010. The dramatic changes in the structure of the insurance business, insurance

coverage has been the first cargo insurance , auto insurance, home property insurance and

Wu song:School of Economics and Management,Sichuan Agricultural University, Chengdu,

Sichuan,611130;Cao zhengyong: School of Economics and Management,Sichuan Agricultural University,

Chengdu, Sichuan,611130;Qin kun: School of Economics and Management,Sichuan Agricultural University,

Chengdu, Sichuan,611130;Lang wei: School of Economics and Management,Sichuan Agricultural University,

Chengdu, Sichuan,611130.Zhang rong: Department of mechanical engineering,Wuchang Institute of

Technology,Wuhan,Hubei,430000.

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business property insurance extended to the field of life insurance, health insurance, credit

guarantee insurance, greatly enriched the field of insurance, insurance types. Insurance market

system is more robust, and various forms of organization of the market players increasingly rich.

The insurance industry continued to expand investment channels, has accumulated a large

amount of money through investment bonds, funds, stocks, real estate and bank deposits have

become increasingly prominent in the capital and money market, economic, financial, functional.

With the continuous development of the insurance industry and in-depth social management

function also gradually revealed.

In 2010, the China Insurance premium income was 1.45 trillion RMB yuan, a year - on - year

growth was 30.4%. Insurance total assets was 5.05 trillion RMB yuan, representing an increase

of 24% from the beginning of the year, but a percentage of GDP was only 12.68 percent, more

than 20% of the proportion of the world OECD countries. A far cry from the insurance

penetration and insurance density compared with the world average level of development. From

the long-term development of the insurance industry , the business model of the insurance

industry in China is one-sided pursuit of size and speed , ignoring the quality and efficiency of

the formation of a high expense ratio , high loss ratio and low operating efficiency contrast , the

insurance industry within the potential operational risks are also to some extent rendered. From a

theoretical perspective , the operating efficiency of the insurance industry as an important

indicator to judge the competitiveness of the insurance agencies , insurance agencies

performance and the level of development of the insurance market , capital allocation and risk

management functions of the insurance industry to play a concentrated reflection of Insurance

theoretical research core one of the issues , the improvement of the operating efficiency of the

insurance industry is also the operation and management of the insurance industry pursuit of

important goals . In the current environment of rapid expansion in the size of the insurance

market within the foreign insurance institutions competing for insurance agencies or insurance

regulators , requires a combination of the history and current situation of the insurance industry ,

and the system is comprehensive and in-depth analysis and research the insurance industry

efficiency. In this paper, the economies of scale through empirical analysis to assess the

efficiency of the insurance industry's profits , Inspection and Insurance , provide useful

information to enhance the efficiency of China's insurance industry in the future , and enhance

the stability and adaptability of the insurance system as well as the ability to withstand risks .

The rest of this article is organized as follows: Part II reviews the insurance efficiency of

operation of the relevant literature; Part III describes the research method, build related models,

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and data and variables described; Part IV evaluates profit efficiency in the insurance industry,

and empirical analysis on economies of scale; Part V reaches its conclusion.

2. Literature review

Study on operating efficiency of insurance problems mainly concentrated in Europe and the

United States, on the operating efficiency of the insurance industry's research is related to cost

efficiency, efficiency, technological efficiency and scale efficiencies of profit, and so on.

Insurance company mergers and acquisitions found in developed countries, in addition to some

mergers among large insurance companies, most merger and acquisition through mergers and

acquisitions can be its own efficiency and benefits of upgrading（Kim & Grace,1995;

Klumpes,2007）. Study the solvency as a constraint to analyze the efficiency of insurance

companies to maximize profits , the profit（Thompson et al ,1974; Kahane,1977; McCabe &

Witt,1980; Harrington & Nelson,1986）. Patrick l Brockett et al. (2004) introduced the ratio of

current assets and liabilities and solvency in the DEA model, and verified that the risk impact on

efficiency. The insurance company service is divided into two kinds of risk management and

financial intermediaries , and to study the relationship between the two services and operational

efficiency（Cummins et al. , 2006）. Research Scholar for economies of scope and economies

was small. The earliest scope economy hypothesis was（Bailey & Friedlaender,1982; Baumol et

al., 1988). Followed by some scholars of this hypothesis in different industries and areas of

inspection , found that the larger insurance companies are more likely to achieve profit scope

economies , the insurance companies have vertically integrated marketing channels more easily

than the use of non-integrated marketing channels profit of economies of scope . Scholars in the

study were Kellner & Mathewson (1983); Yuengert (1993); Grace & Timme (1992) and Berger

et al. (1999). The domestic scholars from the GDP growth rate, inflation rate, interest rate,

residents' income, the level of monetization insurance market structure macroeconomic factors

analysis of the operational efficiency of the insurance industry(Sunfeng,2005; Zhouhailin, Xuxu,

2005; Caihua, 2009). Some studies suggest that the company category, company size, mode of

operation, human capital , ownership structure, the degree of product diversification, employees

per capita premium income, the proportion of auto insurance business, established insurance

company internal factors of the insurance company's cost efficiency and profit efficiency

influential（Yaoshujie et al.,2005; Huangwei,2006; Liuzhiying, et al.,2007）. Another study

found, domestic and foreign operating efficiency of the insurance industry there is a gap, most

property and casualty insurance company in the state of increasing returns to scale, the need to

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expand the scale to enhance efficiency, lower pure technical efficiency of domestic companies,

the need to improve the technical level of management and decision-making（Wangjiating,

Zhaoliang, 2010）.

Research methods to evaluate the operational efficiency of the insurance industry, the use of

research methods mainly include two categories parametric methods and non-parametric

methods. Parametric methods need to be set in advance in the form of the function used to collect

the sample data to estimate the optimal production frontier. Different assumption of random

items and non- efficient items parametric methods can be divided into the stochastic frontier

method (SFA), distribution-free method (DFA) and the thick frontier method (TFA). Non-

parametric method does not require pre-set specific functional form , sample production unit of

the production frontier is estimated by the direct use of linear programming , a nonlinear

programming method , the main method of data envelopment analysis (DEA) and a free set shell

(FDH). Foreign literature has Yuengert (1993), Hardwick (1997) and Cummins & Zi (1998) SFA

method to study the efficiency of the insurance industry. Fecher et al. (1993) combined DEA

methods and SFA method of French life and non - life insurance companies operating efficiency.

Cummins et al ( 1995 ) with the DEA method studied Italian life and non - life insurance

companies operating efficiency , while operating the technical efficiency of the life insurance and

non-life insurance company is only as good as the business of life insurance or only to operate

the non - life insurance company technical efficiency. Fried et al. (2002) proposed the three -

stage DEA model , through the implantation of the environment variable analysis , elect the

specific impact factors lead to inefficient enterprises , accurate evaluation of the efficiency of the

insurance industry ; addition, many foreign scholars use parameters or non-parametric method ,

empirical analysis of insurance efficiency . Such as, Cummins & Weiss, 1993; Rai, 1996;

Cummins, et al (1999), and Stephen Diacon (2004). Domestic literature studies on the efficiency

of the insurance industry use of the DEA method. Zhao Xu (2003) pure technical efficiency of

insurance companies with DEA empirical analysis found that the efficiency of insurance

companies operating in China is not high. Yun Min and Li Xin Dan (2003), the use of the DEA

method analysis of insurance companies operating efficiency, and that the low level of efficiency

of China's insurance industry, there is much room for development. Hou Jin, Zhu Lei (2004)

analyses the gap between the company's operating efficiency of the property insurance market in

the capital as well as the effective operation and actual operating DEA method. Yao Shujie

(2005) analysis of the operational efficiency of 22 insurance companies in China from 1999 to

2002.Wu Yimin(2002) studied the technical efficiency of China's domestic -funded and foreign-

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funded total of 31 insurance companies from 2001 to 2003. Li Chenhua and Zhang Wei(2005)

comparative analysis of the scale efficiency of 28 insurance companies set up before the end of

2001, from 2001 to 2003. Li Kecheng2005) evaluated the relative operating efficiency of 13

domestic life insurance companies from 1999 to 2002. Lv Xiuping ( 2007 ) by DEA method and

empirical research on the macro- efficiency of China 's insurance industry studies have shown

that the efficiency of the scale of China 's insurance industry remained better level , and the level

of technical efficiency is low, and show a downward trend. Chen Lu 2007) the application of

DEA measure the technical efficiency of China's insurance company, the empirical analysis of

the efficiency of the factors affecting the insurance industry. Cheng Dayou, Feng Yingjun (2008)

used a two-stage DEA efficiency evaluation method in the marketing aspects of the property

insurance company in China efficient than foreign companies, but the profitability of the less

efficient than foreign property insurance company. Huang Wei 2009) to build a multi-stage DEA

analysis framework and comprehensive estimates the level of efficiency after considering the risk

factors, the impact of risk factors on the efficiency of the insurance institutions are being

strengthened. Hu Ying, Ye Yugang 2009) the risk factors included in the DEA model analysis

found that the life insurance companies bear a higher risk compared with the insurance

companies, to improve the efficiency levels without risk-adjusted. Li Yanhong, Wu Cong (2009)

used the super- efficiency DEA method to study the technical efficiency of China's insurance

industry and the dynamic changes in trends and test the soundness of the efficiency assessment.

Wang Xiang (2009) efficiency using DEA model analysis of Chinese insurance corporations,

discovery capital advantage over foreign insurance companies on the economic level of the

overall, main factors affecting efficiencies of scale is premium income and revenues. Xie Qiang,

Li Xiufang (2009) using DEA method to analyze the efficiency of insurance companies, and

using m-index to solve industry productivity trends, the study found, Asia financial holding

efficiency highest, followed by European universal model, United States financial holding

efficiency minimum. Cao Qian, Du Wenwen (2009) pay scale based on DEA model and scale

remuneration variable models, an analysis of efficiency and economies of scale of China's

insurance industry, the study found Chinese insurance industry there are economies of scale,

scale efficiency differences between insurance companies are major causes of scale efficiency of

insurance has been declining. Han Song and Wang Deling (2009) with DEA method on

insurance company efficiency and total factor productivity: An empirical analysis, and factors

affecting the efficiency of insurance companies in China. Xu Jingfeng, Li Dongliang (2010)

based on two-stage DEA model on China's insurance market of 26 insurance companies premium

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protection and investment business of an empirical analysis of the efficiency, research results

show that efficiency is increased life insurance company in China, insurance business relating to

the efficiency and the efficiency of the investment business degree. Sun Shu barrier, Lu Xiaowei

(2010) use a two-stage model of DEA model of multiplication and addition of "product

effectiveness" and "efficiency" carried out a comparative analysis, make property and casualty

insurance industry needs to address the problem of uneven profit model, production and capacity.

In addition, the Gan Xiaofeng (2008) using the dynamic frontier model analysis of the cost and

profit efficiency and scale efficiency of Chinese insurance industry development trends, and

examines the impact of macroeconomic factors on insurance industry profits and industry

structure efficiency, results indicate that cost efficiency in domestic than foreign companies,

profit efficiency comparable scale efficiency above the Chinese companies in foreign companies.

By scholars at home and abroad for the above insurance management efficiency research

contents and methods choice of literature can be found, cost efficiency, technical efficiency in the

insurance industry on evaluation strategies, technological advances and an important role in

policy development, but the ultimate criterion of management in the insurance industry, that

profit efficiency. Therefore, management efficiency research of insurance profit efficiency will

be more direct and effective. Efficiency evaluation method in use, parametric methods can be

purely random errors and non-efficiency values for decomposition, but is not properly set or error

function distribution is assumed to be potentially confused with efficient estimation of the error.

Non-parameter method does not need to specify functions or distributions, avoiding setting

errors, but the method treats any deviations from the frontier as inefficient, cannot realistically be

separated from non-efficient random errors, will eventually lead to biassing estimates of

operating efficiency. This measurement error, uncertain economic environment easier to occur in

countries with economies in transition on the basis of facts, integrated advantages of parametric

method and non-parametric methods, on the efficiency of insurance profit estimates using

Battese & Coelli (1995) proposed single-stage model for stochastic frontier analysis technology,

economies of scale at the same time test China's insurance industry.

3. The Models

3.1 Profit frontier model

Due to China's insurance industry has effect accounted for market structure of nature,

insurance market in decided outputs price has larger of market influence, through estimated profit

random frontier function to obtained profit efficiency, and random frontier analysis technology as

currently more popular of parameter estimated technology, by Battese & Coelli(1995) made of

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single stage random frontier model generalized Shang by three a equation composition, this

building of corresponding profit frontier model for:

ln ln -lnt X V Uit t it it it

(i)

1 1i N t L L，，；，，T

Where i stand for insurance companies, t represents the time, it

represents the i-th cost of

insurance company profits, Xit

represents the i-th form of logarithm of the input and output of

insurance enterprises, for the k-dimensional vector.Vit

is a random variable, independent of the

Uit

. And assumes that it is subject to independent identically distributed normal

distribution 20Nv

， .Uit

is Non-negative profit inefficient, subject to independent, zero-

truncated normal distribution 2,N lit u . is estimating coefficient vector. Frontiers of profit

function is valid, must be subject to the variation ratio r is not zero（

2u=

2 2+u v

），

01 ， . If you do not meet this condition means that the non-efficiency does not exist, frontier

function is invalid. When r closer to 0, efficiency of deviation mainly determined by the random

errors when r closer to 1, efficiency of deviation mainly by inefficient decisions. Through

efficiency function of unilateral likelihood ratio LR test statistic test of significance of variation

rates of formation of zero assuming r, variation rate r value size to determine the efficiency of

deviation is mainly determined by the random error or by inefficient decisions.

Profit without efficiency effects model are:

l t r Mit t it it

(ii)

The t time insurance company profit efficiency:

exp - =exp - -LE U r Mit it it it

(iii)

Among them, consisting of rit

are interpreted by the Mit

related variables of a vector; Mit

is

subject to the truncated normal distribution 20,N . is to estimate the coefficient vector.

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Using stochastic frontier beyond the logarithm boundary functions (Translog Stochastic

Frontier Function) represents the profit function is:

3 2 3 31ln ln ln + ln ln

1 21 1 1 1

2 2 3 21 1 2ln ln + ln ln ln - ln112 21 1 1 1

Y P T Y Yit j jit k kit jm jit mit

j k j m

P P T Y P V Ukn kit nit rs rit sit it it

k n r s

(iv)

Where represents a profit; Yj represents the output; P

k on behalf of inputs; T is the time

trend; Vit

Is a random error term; Independent ofUit

;Uit

non-negative profit inefficiency items;

，，，， are parameters to be estimated.

3.2 Economies of scale model

A previously constructed beyond the logarithmic profit function using the Box-Cox factor

(Caves et al., 1980) replace output beyond the profit function independent of the value lnYj be

generalized beyond the logarithmic function , this conversion can be an effective solution to the

joint production as well as specific output zero conversion factor :

1 /Yj j

(v)

=0Yj

,1

=j

, 0 , lnYj j

(vi)

That is beyond the logarithmic profit function is generalized beyond the special circumstances

of the number of profit function. This article value by a grid search method and makes the value

of the residual sum of squares and most hours ( Beger, et al , 1987 ; Buono & Eakin , 1990 ;

Clare, 1996 ) , at = 0.1 , profit function of all the coefficients of the P value close to 0 , and the

residual sum of squares and the minimum , so = 0.1 is selected . The box-Cox factor

replacement generalized beyond logarithmic profit function:

3 2 3 3

1

1 1 1 1

2 2 3 22

11

1 1 1 1

1ln ln +

2

1 1ln ln + ln ln - ln

2 2

j jit k kit jm jit mititj k j m

kn kit nit rs rit sit it it

k n r s

P T

P P T P V U

(vii)

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Economies of scale with the flexibility of generating profits:

3 3 ln

1 1

GM ej

j j j

(viii)

3 2ln

1 1

e Y Y Pj j j jm m rs s

m s

(ix)

Among them, GM for economies of scale factor, ej

as output elasticities of output j profits,

when you GM>0, means that the insurance industry there are economies of scale; when you

GM<0 insurance there are diseconomies; when you GM=0, neither there is diseconomies of scale

economies.

3.3 Variables and data description

Increase value (Berger & Humphrey,1997) is the study of the insurance operation efficiency

up to theory, this added value on the basis of the law of, depending on availability, define two

kinds of inputs: labour (1

P ) and capital (2

P ); three outputs: premium income (1

Y ), deposit (2

Y )

and investment income (3

Y ).Labour input is expressed in number of employees; capital

investment represented by fixed assets on the balance sheet, deposits time deposits on the balance

sheet in the output indicates, premium income in the insurance statistics of the original insurance

premium income, investment income investment income on the balance sheet. All of the data

sources for statistical information of the China Insurance Regulatory Commission and the China

Insurance Yearbook (2004-2009).This select of in the funding life insurance enterprise (China

Life , CPIC, PINGAN, NCI, TAIKANG LIFE, CHINA TAIPING), and foreign life insurance

enterprise (MANULIFE-SINOCHEM, ALLIANZ, ICBC-AXA LIFE, CTTIC, GENERALI

CHINA LIFE INSURANCE, AIA, Haier NEWYORK LIFE), and in the funding casualty

enterprise (PICC, CCPCIC, CECIC, CUI, CPIC, PING AN OF CHINA , Huatai INSURANCE)

and foreign casualty enterprise (TIANAN INSURANCE, Chartis, TOKIOMARINE NICHIDO,

Winterthur Swiss Insurance, RSA, Sumitomo Mitsui Financial Group, SAMSUNG PCIC,

Allianz SE) samples are premium top insurance agency, a total of 28, its market share at more

than 70%, representative, all data processing using the Eviews6.0 software.

4. The Empirical results

This article assumes that all cross slope and time sample points on the same, frontier random

function parameter estimation on Chinese insurance industry profits, the model most of the

estimated coefficients are significant, the model fit and an f-test values are higher, and coefficient

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of variance of the values is smaller.The ratio is 0.92, proved inefficient in the composite error

accounted for the vast majority, and random error accounts for a very small proportion. Profits in

the insurance industry with an average efficiency of 80.6%, have shown that technical conditions

did not change and the same input cases, average profit to be lower than the theoretical maximum

possible profits of the insurance industry 19.4%. Results of specific coefficients are shown in

Table 1.

Table 1 Frontier Model of Estimation of Profit Results

Variable Coefficient Std. Error t-Statistic Prob.

α -0.533657 5.718353 -0.093324 0.9258

β1 -2.050625 1.069404 -1.917541 0.0576

β2 0.309985 0.340594 0.910129 0.3646

β3 0.68787 0.549717 1.251316 0.2133

φ1 0.539878 0.844694 0.63914 0.524

φ2 -0.107704 0.613548 -0.175543 0.861

τ1 -0.309315 0.319436 -0.968316 0.3349

β11 0.17798 0.073502 1.210717 0.0085

β12 -0.127809 0.138918 -0.920033 0.3594

β13 -0.256478 0.193187 -1.327619 0.1869

β23 0.099836 0.049073 2.03446 0.0441

β22 0.031106 0.015952 0.976541 0.0266

β33 0.017767 0.063954 0.277803 0.7817

φ11 0.032354 0.064229 0.251866 0.3077

φ22 -0.012801 0.01481 -0.432173 0.1946

φ12 0.055257 0.178504 0.309554 0.7574

ψ11 -0.059294 0.117609 -0.252082 0.3075

ψ12 0.001759 0.172064 0.010221 0.9919

ψ21 -0.019824 0.140527 -0.141068 0.8881

ψ22 -0.024142 0.028574 -0.42245 0.19995

ψ31 0.015697 0.184694 0.08499 0.9324

ψ32 0.139838 0.062918 2.222547 0.0282

τ11 0.0162 0.02022 0.4006 0.2123

Weighted Statistics

R-squared 0.804867 Mean dependent var 4.922238

Adjusted R-squared 0.723838 S.D. dependent var 2.21216

S.E. of regression 1.162515 Akaike info criterion 3.381008

Sum squared resid 159.4701 Schwarz criterion 4.310759

Log likelihood -234.0046 Hannan-Quinn criter. 3.758346

F-statistic 9.933002 Durbin-Watson stat 2.373384 0.92 Average profit efficiency 80.6%

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Figure 1 Average Efficiency Level of China's Insurance Industry (2004-2009)

Figure 1 draws an insurance changes in average profit efficiency curves for different years in

China. From 2004 to 2009, profits continued to increase in the efficiency in stationary, rose from

74.8% to the cent. 2005 and 2008 profit efficiency appears must degree of declined, 2005 years

profit efficiency declined for 70.6% of main causes can comes down for: China insurance market

policy is relax, allows foreign insurance company provides health insurance, and pension and

annuity, business, canceled on established foreign insurance body of geographical limit, as

foreign insurance body of continued influx, China insurance does not do full prepared, appears

has year of profit efficiency declined of situation. 2008 profit efficiency drops to 80.6% mainly

due to the impact of the global financial crisis, China's insurance industry operating efficiency is

also affected, a downward momentum, but with the macro-policy adjustments, rapid profit

efficiency in 2009 rose to 87.7%.

Figure 2 Average Efficiency of the Different Types of Insurance Institutions

Figure 2 depicts the different types of insurance institutions in China profit efficiency

comparison between curves. In the funding property insurance body of average efficiency and

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insurance industry of profit efficiency difference smaller, for 79.5%; foreign property insurance

body due to business of scale and business type relative less, average efficiency for 68.4%, than

insurance industry of average efficiency low 15.14%; and in the funding life insurance body and

foreign life insurance body of average efficiency is difference is unlikely to, respectively for

87.3% and 87.2%; than insurance industry average efficiency high 8.31% and 8.19%. Diagrams

also show the average efficiency of China's life insurance than property casualty agencies

generally higher, mainly due to the life insurance agencies occupy a major share of the insurance

market in China. Property casualty agencies competitiveness is relatively small. Thus, profit

frontier function below the estimated coefficient of economies of scale in insurance enterprises in

China, verify that there are economies of scale efficiencies.

Table 2: Insurance Companies Economies of Scale Factor

Economies of scale factor（GM） In 2004 In 2005 In 2006 In 2007 In 2008 In 2009

PICC -0.7913 -0.7951 -0.8269 -0.9167 -1.0440 -0.9747

CCPCIC 0.4429 0.1906 0.0383 -0.1082 -0.1155 -0.0880

CECIC 0.4299 0.3413 0.2792 0.2274 0.0139 0.2156

CUI 0.0275 -0.1201 -0.2442 -0.3120 -0.3330 -0.3273

CPIC -0.2157 -0.2300 -0.3084 -0.3996 -0.5391 -0.4620

PINGAN -0.1277 -0.1858 -0.2833 -0.3679 -0.5835 -0.4477

HUATAI INSURANCE 0.5556 0.5115 0.4528 0.3041 0.2695 0.3124

TIANAN INSURANCE 0.1027 0.0372 0.0355 -0.0074 0.0069 0.0207

CHARTIS 0.7339 0.6888 0.6402 0.5984 0.6044 0.5934

TOKIOMARINE NICHIDO 0.9125 0.8820 0.8317 0.7887 0.8109 0.7658

Winterthur Swiss Insurance 1.1846 1.1535 1.1476 1.1363 0.9716 1.0491

RSA 1.1770 1.1140 1.0463 0.9836 1.0004 1.0323

Sumitomo Mitsui 1.0187 0.9673 0.9359 0.8710 0.8123 0.8363

SAMSUNG PCIC 1.0629 1.0266 0.9662 0.8971 0.8589 0.8630

Allianz SE 1.2144 1.1170 1.0139 0.9364 0.8636 0.9007

China Life -1.1429 -1.1744 -1.2351 -1.2657 -1.4557 -1.4566

CPIC -0.5420 -0.5603 -0.5771 -0.6901 -0.8051 -0.7961

PINGAN LIFE -0.7215 -0.7493 -0.8135 -0.8700 -1.0884 -0.9727

NCI -0.3203 -0.3614 -0.4464 -0.5209 -0.8003 -0.7273

TAIKANG LIFE -0.2999 -0.3022 -0.3571 -0.5392 -0.8016 -0.7418

CHINA TAIPING 0.0304 -0.0292 -0.1448 -0.2617 -0.3864 -0.3233

MANULIFE-SINOCHEM 0.6769 0.6389 0.5802 0.5225 0.4237 0.4668

ALLIANZ 0.9499 0.8391 0.5057 0.2598 0.4061 0.3211

AXA LIFE 0.6587 0.8357 0.7260 0.5783 0.5983 0.6802

CTTIC 1.1772 0.5435 0.4297 0.2588 0.1753 0.1985

GENERALI CHINA LIFE

INSURANCE 0.8086 -0.3426 0.0880 0.2323 0.1419 0.3576

AIA 0.1222 0.0328 0.0093 -0.0694 -0.0370 -0.0182

Haier NEWYORK LIFE 1.0236 0.8828 0.8531 0.7847 0.7381 0.7566

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Figure 3. Efficiency of Different Types of Economies Scale in Insurance Business (2004-2009)

We can see from Table 2 and Figure 3 economies of scale efficiencies the insurance

enterprises in China. Chinese-funded life insurance companies and local property companies

there are diseconomies, and foreign-owned property companies and foreign-funded life insurance

companies render the economies of scale. Due to China's domestic insurance companies to

occupy the vast majority on the scale, and invalid serious competition between the Chinese-

funded insurance companies, on the Chinese-funded insurance companies as a whole is

diseconomies. And foreign-funded enterprises while entered China insurance market relative

more late, but are their maintained own national of insurance business concept, effective of

control company of risk, in participation and China within funding insurance market competition

in the, more stressed insurance service quality and formed science of rates regulatory mechanism,

at any time on insurance business for Science effective of adjustment, to adaptation market of

changes, to in insurance business efficiency in the reflect out scale economic efficiency of

situation. From the perspective of development trends, insurance enterprises ' overall economies

of scale coefficient values are reduced over time, with changes in government regulation of the

insurance industry and the level of management skills upgrading or if technological advances,

increases the effective size of the insurance industry in China. You can see from Figure 3, 2004-

2009 China's insurance industry in overall terms, economies of scale are not significant, 2008

due to the financial crisis affecting the economies of scale of coefficient is negative, 2009

rebound is positive, but is not very obvious economies of scale. Foreign life insurance companies

and foreign-owned property companies during this period the economy of scale factor for a

positive number, and the overall stable situation, description of foreign-owned insurance

companies to maintain profit growth effectively in control of their own business risk, strong

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stability in the scale economy. Owned life insurance and owned property in enterprises in terms

of diseconomies appear to be growing trend, in 2008 culminated in 2009 fell, suggesting that

China's domestic insurance industry there are many drawbacks in the insurance business process,

such as the shortage of core resources, scientific rate control mechanism is not perfect, as well as

insurance industry competition. Chinese-funded insurance companies in profit and efficiency

above did better than foreign-owned companies, but in terms of business risk control and the

large difference in foreign-funded enterprises, showed diseconomies.

5. Conclusion

This article using stochastic frontier analysis methods to build a mathematical model of

efficiency and economies of scale of Chinese insurance industry profits, an empirical analysis of

China's 28 home insurance agency in three years between the 2004-2009 profit efficiency and

economies of scale of the observations. Study results showed that profit efficiency in general

conformity with the actual situation of China's insurance industry, owned property in enterprise

profit efficiency is better than foreign-owned property companies, and Chinese-funded

enterprises and foreign-funded life insurance companies life insurance profit efficiency not that

far away. From the perspective of time trends, industry in the overall performance of economies

of scale in China, Chinese life insurance business and owned property in enterprise performance

for scale economies, and foreign life insurance companies and foreign-owned property

companies economies of scale significantly, and robustness. This article examined several

important interrelationships between variables and different levels of insurance business

efficiency measurement values will help us more fully grasp the insurance agency's efficiency

and overall operating efficiency of the insurance industry. Attention operates operate efficiency

in the insurance industry, will help enhance the competitiveness of insurance companies. With

the deepening of insurance management efficiency research, research will focus on to the

insurance companies act, the governance of insurance companies and insurance supervision of

market risk levels; build a sound performance evaluation system of insurance would help

insurance companies effectively measure and improve operational efficiency in the insurance

industry, will also help to speed up the process of institutional reforms and economic

development in the insurance industry.

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