Journal of Insurance and Finance 2021 KCI Impact Factor : 0.67

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pISSN : 2384-3209

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2018, Vol.29, No.3

  • 1.

    An Empirical Analysis of the Insurance Investors’ Trading and Its Effects on Stock Markets

    Min-Cheol Woo , Kim, Jee-Hyun | 2018, 29(3) | pp.3~44 | number of Cited : 2
    Abstract PDF
    This study investigates the stock preferences and investment strategies of insurance investors and the effects of their trading on the Korean stock markets. For this purpose, we examine the investment portfolio of insurance investors from 2005 to 2017. The major findings are as follows. First, insurance investors have a significant preference for stocks with high market capitalization, high price level, high liquidity, and low volatility. Second, the involvement intensity of insurance investors is higher in the KOSPI market than the KOSDAQ market. Third, at the market level, insurance investors take contrarian investment strategies by buying losers and selling winners. Forth, at the stock level, they also take investment strategies buying stocks with low returns in the recent past. This investment strategy is more prominently observed in the KOSDAQ market. Lastly, we find that insurance investors serve a role of the stock market stabilizer by enhancing the liquidity and mitigating volatility. While the liquidity effect is stronger in the KOSPI market, the volatility effect is more prominent in the KOSDAQ market. Considering the rapidly increasing investment of insurance investors in the stock market, the analysis of their trading characteristics and influence on the stock market is crucial, especially with a comprehensive long-term dataset covering the most recent period. Our findings suggest that the increasing involvement of insurance investors in stock trading is expected to provide a positive influence on the stock market in terms of market liquidity and volatility.
  • 2.

    A Study on the Estimation of the Discount Rate for the Insurance Liability under IFRS 17

    Sekyung Oh , OUH, CHANGSU , PARK, Sojung and 2 other persons | 2018, 29(3) | pp.45~75 | number of Cited : 3
    Abstract PDF
    This study aims to suggest a method to estimate the illiquidity premium and the discount rate for the insurance liability and provide their estimates based on it. To identify a financial instrument whose characteristic of illiquidity is most similar to that of the insurance liability, we calculate the internal rate of return (IRR) of the insurance liability which reflects the characteristics of the cash flows and the illiquidity characteristics of the insurance liability, using the data of the three largest life insurance companies in Korea. When we mirror the IRRs of the insurance liability with the yields-to-maturity of corporate bonds, we find that AA-rated corporate bonds match the most with the insurance liability in case of publicly issued bonds. As a methodology to estimate the liquidity premium of corporate bonds, we apply the methodology of Oh et al. (2016) which extends Fama-French two factor model. The results show that the liquidity premium of public AA-rated corporate bonds increases steadily from one-year maturity bonds (12 bp) to twenty-year maturity bonds (75 bp) except seven-year maturity bonds. The average liquidity premium is estimated to be 53 bp, when extending the maturity up to fifty years which is the longest maturity of government bonds observed in Korea. The discount rates for the insurance liability can be calculated if the estimated liquidity premium is added to the risk-free yield curve. We expect that the estimated discount rate and the liquidity premium for the insurance liability can be used by the regulatory body and the practitioners of the industry, since it is not only estimated based on the principle of IFRS 17, specifying “the discount rates should reflect the time value of money, the characteristics of the cash flows and the liquidity characteristics of the insurance contracts”, but also it reflects the Korean circumstances the best.
  • 3.

    Does changing tax treatment method increase private pension saving?

    Chung Wonsuk | 2018, 29(3) | pp.77~102 | number of Cited : 2
    Abstract PDF
    To enhance pension saving incentive to lower income earners and adjust tax favor to higher income earners, the Korean government changes the tax treatment method for the private pension contributions from tax exemption to tax credit in 2014. To assess the policy effect empirically, we analyze the policy effect by income level using the National Survey of Tax and Benefit Survey data from 2012 to 2016. We find two important pension saving behavior after changing the tax treatment method from the analysis. First, on average, private pension subscription has a negative causal relationship with the tax treatment method. We find that changing tax treatment method decreases the probability of pension subscription rate by 0.57%. However, for the pension subscription, there is no statistically significant evidence that a certain income group differently reacted to the new tax treatment method. Secondly, for the amount of pension contribution, changing the tax credit method decreased the pension contributions and compare to the higher income earners, the lower income earners decrease the amount of pension contribution more. Therefore, we conclude that, ironically, the new policy reduces the most needed group's pension savings. We claim that to make lower income earners save more pension fund the government needs to provide more customized incentives scheme.
  • 4.

    The Policies for Reducing the Misselling of Insurance Products for Protecting Consumer

    Jung SeChang , Chulkyung Ahn | 2018, 29(3) | pp.103~135 | number of Cited : 15
    Abstract PDF
    The purpose of this paper is to propose the measures reducing the misselling of insurance products for protecting consumers based on them which have been recently devised in the UK, the US, and Australia. In order to reduce the misselling in Korea, we have implemented various supervisory policies such as disclosing the misselling ratio, adopting the suitability rule, improving the sales process, and changing the commission payment structure. As a result, the misselling ratio is steadily declining, but consumer still feels the damage caused by the misselling. On the consumer side, mandatory financial and insurance education in the UK and the US mitigate information asymmetry and helps to reduce incomplete sales in the long run. In terms of product sales, the UK's Retail Distribution Review (RDR) reform and Australia's financial services reform were effective in reducing the misselling through structural reforms in the insurance market, including a reorganization of the pay system and upgrading channel expertise. The proposals are as follows: First of all, the financial literacy education should be mandatory at school, which is carried out by the National Assembly and the financial authorities as the UK. Second, as product and channel reform, it is necessary to simplify insurance products, differentiate channels by products, and enforce maintenance service system for policies not maintained by financial planner, so-called orphaned policies. Third, in terms of supervisory side, it is necessary to reform channel maintenance education, clarify the legal basis for improving the commission system and the sanctions against twisting or churning, and strengthen the internal control of GA.