ANALYZING THE PERFORMANCE OF NON-LIFE INSURANCE COMPANIES USING TWO-STAGE DATA ENVELOPMENT ANALYSIS

Abstract

To the side from the technical and financial ratios currently consuming by the Insurance Commission, this study develops a degree of efficiency derivative using two-stage Data Envelopment Analysis, a linear regression programming approach (non-parametric) as a substitute in evaluating the presentation of the non-life insurance companies. By using randomly selected data attained from financial reports from 2006 to 2019 of the non-life insurers companies of the Pakistan based on Gross Premiums Written (GPW), goal line programming was utilized to develop a set of weights to be applied to the introducing insurers for the selected variables such as: net claim, general and administrative expenses, gross premiums written, net premiums revenue, net income and investment, to calculate for their particular efficiencies. Results exposed that by equating the average normalized overall efficiency scores across 2 years, DMU 11 is the most efficient among all. Moreover, DMU 21 also obtained the maximum efficiency. The CCR scores present that, the in-efficient non-life insurance company is DMU 18 while the most efficient non-life insurance company is DMU21 as per average efficiency measures. Respectively, total efficiency scores (CCR) techniques (BCC), constant (CRS) and input output variable (VRS) efficiencies of DMUs were also evaluated and discussed in this study. Further the study proceeds towards the drivers of the efficiency cause by using panel data through unit-root test and Hausman test suggests that fixed effect is appropriate for the study. The two variables size and age have a positive relation with the efficiency while the remaining variables have the negative relation with the economy