Firm-specific, industry-specific and macroeconomic factors of life insurers' profitability: Evidence from Canada

摘要

The purpose of this study is to examine the effects of firm-specific, industry-specific and macroeconomic factors on the performance of life insurance firms. This study focuses on the Canadian life insurance sector, which is the second largest and oldest financial services sector in Canada. Using an empirical framework that incorporates both fixed and dynamic panel models that control for endogeneity issues, this research finds that size, liquidity, and risk exposure of life insurers are significant factors in their profitability. Secondly, industry concentration (e.g., HHI) fail to provide any meaningful evidence to support the structure-conduct-performance (SCP) theory in the static panel models, but in the dynamic models, industry concentration tends to have negative impacts on profitability. Macroeconomic factors such as real GDP growth and equity market returns are found to be significant determinants of insurers' profitability. Finally, the persistence of profits for life insurers' seems to lag that of their financial services counterparts (e.g., banks).