Study Of X Efficiency Based On SFA In Chinese Insurance

The insurance is one of biggest industries in the financial system , and has the close relation with the capital market and the money market. Also it is an important part of the social security system, and is close relation with people's life. With opening to the outside world, the pressure that the Chinese insurance is facing is becoming heavier and heavier. So now it is a serious problem how to improve the efficiency of insurance more quickly and better,so we should solve it.On the basis of up-to-date research at home and abroad, we use SFA (Stochastic Frontier Approach) to estimate the produce efficiency and cost efficiency of 51 insurance companies between 2003 and 2005 year. At the same time respectively from the produce efficiency and cost efficiency, analyse factors affecting the efficiency. And at last , give several suggestions to improve the efficiency. The paper mainly has four parts:In the first chapter, introduce the development about 20 years and the existent problems in insurance, and explain the importance of study about efficiency. Then look back methods and results of research from abroad and home.In the second chapter, mainly introduce study of efficiency about the insurance. Firstly, define and classify the efficiency. It is one of the econom- ic cores, and many scholars have given definition about efficiency at home and abroad. For example, a famous scholar, Paul A.Samuelson in his book"economics"says:"that"efficiency indicates the nonexistent dissipation . It is the efficiency that when produce without reducing anything , cann't incr- ease output of another thing.This is called efficiency."We can say that the efficiency of insurance are the relation of input and output , and relation of cost and profit . It reflects the ability of allocating resources and is the important index about the market competitive ability, ability of input and output and ability of sustainable development. So it has the important practical significance to estimate efficiency. The efficiency has several kinds: Scale Efficiency, Scope Efficiency and X Efficiency. In the paper, efficiency means X Efficiency.We estimate the X Efficiency and analyse influencing factors of efficiency in order to improve the efficiency of insur- ance companies. X Efficiency is classfitied by Berger (1997) that it includes cost efficiency and the standard profit efficiency, and let us study the efficiency from different aspects.Then, analyse these research methods of efficiency. These methods have two kinds mainly, which include parameter methods and non parameter methods. Compared to these methods, We find that the SFA method has more advantages. If we ues it ,we can set up the concrete function form that will make analysis more convenient, analyse factors influencing the efficiency directly, after calculating the efficiency, check the result and the equation fitted value conveniently ,and consider the measure error and random error that make the result more truly. So we deci- de to choose the SFA method.In the third chapter, analyse the efficiency of Chinese insurance. Choo- se 51 companies between 2003 and 2005 year , at all included 17 companies that are state-owned and 34 companies that are joint-stock or foreign. From two aspects of production and cost to analyse the efficiency, Firstly set up the production function form and variable. the form:Then choose the total income for output and , , and P for input. means labor price (worker's salary/work's number). means reserve price (total reserve/total assets). means assets capital price(wor- k ing cost/retained capital asset). P means output price(interest and investm- ent income/total payoff assets).The cost function form:Choose total cost for output. Then choose W1 , W2 , W3 and Yi /Z i (total income/owner's equity)for input.In the respect of choosing factors affecting efficiency, we choose the logarithm of total payoff assets, ratio of earning in total assets, ratio of working cost, ratio of Investment and interest income in total income, ratio of owner's equity in total assets and ownshipment (dummy variable ,equal to 1 means the state-owned company). There are six variables at all. the form :Secondly, by using Frontier4.1,calculate the production efficiency, cost efficiency and parameters, then analyse the result. We find some facts. In the aspect of efficiency, the efficiency is improving notably in three years. It shows that the efficiency of Chinese insurance is in rise. The state-owned insurance companies in the production efficiency have predominance, but joint-stock and foreign companies show big potential in rise of production efficiency. In other aspect of cost efficiency, joint-stock and foreign companies show the big potential. its cost efficiency is higher and raising faster than state-owned companies. The facts tell us that joint-stock and foreign companies control cost and manage to operate better than state-ow- ned companies. In influencing factors, Ratio of Investment and interest income in total income, ratio of owner's equity, ratio of working cost, and ownershipment influence the cost efficiency notably. And Ratio of investm- ent and interest income in total income, ratio of owner's equity, and owner- shipment influence the production efficiency notably. At last , in other aspects, find that if reserve price (reserve total/total assets) rises, the total income will rise and the cost will decrease. If total pay-off assets rise, the production efficiency will decrease and cost efficiency will rise.In the fourth chapter, based on the results of analysis, give several sugg- estions to improve the efficiency of state-owned insurance companies.Based on analysis, we find ownershipment and investment and interest income inf- luence the efficiency more deeply . We could improve the two factors to improve efficiency. And we find that to increase total pay-off assets is able to reduce production efficiency and improving cost efficiency, it tell us that only to increase can not improve efficiency simply. So we give several suggestions. Firstly, change ownershipment more quickly and deeply . Secondly improve efficiency of investment and accelerate the innovative speed of investment. Thirdly, urge the development model changing, included introducing internationalizational manage and the system of insur- ance broker.There are several difference in paper. Firstly, in the research method, use the SFA method and Douglas production function to measure efficiency, when most scholars use the DEA method to analyse efficiency. It is a beneficial trial. Secondly, in the research sample, choose 51 companies between 2003 and 2005 year. The large number of samples make the result more accurate. Thirdly, from the aspect of production and cost, analyse the cost efficiency, production efficiency and their fators of efficiency. From two aspects can avoid unilateralism better. Forthly, in the aspect of choosing variables, introduce new variables in production function and cost function. Include insurance reserve and investment income, when only choose hunman cost, capital price before. And in production function, use total income instead of retained profit. So can consider these companies of which retained profit is negative and make research more all-around. Also in the analysis of factors influencing efficiency, add dummy variable and several financial indexes, so can analyse further and more deeply.