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Determinants of Asset Allocation by the Korean Life Insurers

  • Journal of Insurance and Finance
  • 2007, 18(3), pp.37-67
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management

Choi Young-Mok 1

1보험개발원 보험연구소

Accredited

ABSTRACT

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.

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