How does the life insurance business perform and behave: the case of the UK industry

Abstract

This thesis reviews the UK life insurance industry comprehensively in terms of performance and business behaviour. One major contribution of the thesis is to challenge the conventional view on evaluation of investment funds from a shareholders’ perspective. The accounting valuation techniques to evaluate investment from the policyholder’s perspective have not been advanced to the same extent as methods designed to evaluate investment from the shareholder’s perspective, due partly to the accounting complexity of the investment management. Against this context, the thesis develops a valuation method on the basis that policyholders’ basic expectation that their saved funds shall be invested with value growth higher than inflation in the real goods market, and the thesis takes this as the benchmark to assess the reported value of policyholders’ assets. The thesis employs this valuation to assess the performance of different life assurance products (conventional vs. modern) and examine whether the transformation (from conventional to modern) has any impact on insurer performance and behaviour. The thesis also examines whether product diversification impacts realised and unrealised investment income homogenously; the result suggests that the effect of product diversification on performance varies across different measurements of realised and unrealised gain. The second major contribution of the thesis is to test the validity of different output proxies and compare efficiency scores based ranking for competitive firms to the value creation based ranking. Overall, the thesis suggests that different output proxies give consistently similar ranking for competitive firms, and cost efficiency based on different proxies are closely related to conventional measurers of firm performance and value creation in terms of value and ranking.