2019, Vol.30, No.2

Journal of Insurance and Finance 2023 KCI Impact Factor : 0.59

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

We use the Dynamic Nelson-Siegel model (DNS) to simulate interest rate shocks and analyze how they affect the term structure of interest rates. We generate scenarios of the interest rate shocks following the suggestion of ICS: mean-reversion, level-up and down, twist-up and down shocks. Sensitivity analysis is also conducted on various parameter assumptions. We find that each scenario gives a various impact on the term structure. Therefore, it is necessary to cope with risk factors of interest rate shocks. Moreover, we analyze the difference in the interest rate shock scenarios between PCA and DNS. It will be necessary to select a model suitable for the domestic environment through various analyses and comparisons of interest rate risk models.

This paper aims to investigate the risk-based premium rates of the Korea Deposit Insurance Corporation (KDIC), particularly focusing on life insurance firms. To accomplish this, we employ the exchange option model based on the assumption that assets and liabilities follow lognormal diffusion processes. Further, we incorporate the discount rate of expenses based on a purchase-and-assumption to consider the characteristics of the life insurance sector. To estimate premium rates between 2010 and 2017, we use the empirical data of Korean life insurance firms and asset indexes from 2000 to 2016. The result provides evidence that life insurance companies in Korea have been generally charged higher premium rates than they should be charged. The result also shows that most of the healthy life insurance companies aid a smaller number of risky companies in Korea. Finally, our result indicates that premium rates tend to be more sensitive to correlation between assets and liabilities under capital deficiencies.

The previous literature examined theoretically the existence of strategic demand for insurance and the effects of the product market competition on corporate demand for insurance. This paper examines the effects of product market competition on corporate demand for insurance. In order to test the relationship, we rely on the firm-level financial data which includes 10,908 firms in 439 industries classified according to the 5-digit Korean Standard Industrial Classification from 2007 to 2015. We adopt the fixed effect panel model together with the difference GMM, merging the firm-level data with the market competition measurements by Korea Fair Trade Commission. Contrary to the existing research, we show that stronger product market competition is associated with greater premium to sales ratio.