2007, Vol.18, No.3

Journal of Insurance and Finance 2023 KCI Impact Factor : 0.59

pISSN : 2384-3209
https://journal.kci.go.kr/kiri

The purpose of this paper is to measure the level of Korean insurance industry's social reliability and suggest measures to restore the trust of the insurance industry through reforming the customary practice. This study analyzes the cognition of domestic insurance CEOs, policyholders, and newspapermen on the level of social reliability, the causes of low reliability, and the measures of enhancing the reliability level. For the analysis of survey questionnaire, partially ranked data analysis was employed. The results show that most respondents recognize that the reliability of insurance industry is lower than that of other financial industry such as banks and securities firms. The main reason for this low reliability is the lack of sales forces' specialty, the complexity of insurance products and contracts, and negative media release about insurance industry. To enhance the social reliability level of insurance, establishment of the future insurance image is essential, and that can be achieved through strengthening the school education and public relations. The customer-oriented management as well as the reinforcement of ethics management needs to be settled down through quality assurance and complete sales. To make it successful, the insurance industry's implementation should be autonomous, the supervisory authority's continuous effort to improve the system is needed, and effectiveness needs to be enhanced though the cyclical check of insurance companies.

This study examines the determinants of asset allocation on domestic life insurance companies for the fiscal years between 2000 and 2005. Unlike previous studies, this paper analyzes the determinants of asset allocation reflecting the selection of the holding period and risk level of assets. We employ the dependent variables as the investment ratio of the traded securities and investment securities according to the holding period, and that of low risk class and high risk class according to the degree of risk. The explanatory variables using in this study are the sales ratio of interest sensitive product, the ratio of responsibility reserve in group insurance, the asset size, the ratio of capital to total asset, the growth rate of asset, the dummy variable representing the difference between big 3 companies and other companies, the dummy variable showing difference between foreign companies and domestic ones, and market interest rates. Our empirical results in this paper prove the following facts. First, the more the sales weight of interest sensitive products and the ratio of capital to total asset, the less the investment weight in traded securities with short-term holding period and the more the investment weight in investment securities with long-term holding period. Second, the higher sales weight of interest sensitive products, the smaller asset size and the higher ratio of capital to total asset result in higher investment weight in the low risk asset class. On the other hand, the lower sales weight of interest sensitive product and the larger asset size and the lower ratio of capital to total asset lead to the higher investment weight in the high-risk asset class. Third, the foreign companies have a higher investment weight on the investment securities with long-term holding period and with the low-risk asset class. In conclusion, our paper implicates that the compositions of insurance product, financial health and asset size have an effect on asset allocation as well as insurance sales.

This study provides an empirical analysis of the determinants and extent of derivatives usage in the Korean life insurance industry for the period 2003~2006. The regression results indicate that the determinants of derivatives participation are total asset size, foreign securities investment, and ownership type(domestic or foreign). Average cost(total cost/total asset) is related to the volume of derivatives, which supports the existence of economies of scale in derivatives market. Korean life insurance firms mainly use derivatives to hedge foreign exchange rate risks due to the foreign securities investment focused in asset-liability duration matching. As a result approximately eighty percentage of total derivatives contract is related to foreign exchange rate. Domestic insurance firms with higher foreign currency exposure are more likely to use derivatives than foreign insurance firms. However, leverage, maturity of guaranteed liability, and reinsurance are not related to the use of derivatives.