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Porntida Poontirakul

A Thesis Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Science (Insurance, Actuarial Science, and Risk Management ) School of Applied Statistics National Institute of Development Administration 2012

ABSTRACT

Title of Thesis

Auther Degree

Miss Porntida Poontirakul Master of Science (Insurance, Actuarial Science, and Risk Management)

Year

2012

Non-life insurance consumption in Thailand has increased significantly in the past decade. Many factors have contributed to the development of non-life insurance industry including macroeconomic factors. This research, therefore, aimed to study the impact of macroeconomic factors on the increasing non-life insurance consumption in Thailand. Twenty independent variables were gathered from eight macroeconomic indices, which were published by the Bureau of Trade and Economic Indices, i.e.: Consumer Price Index, Business Cycle Index, Inflation Cycle Index, Export Business Situation Index, Consumer Confidence Index, Producer Price Index, Construction Material Price Index, and Export and Import Price Index. They were selected to be statistically examined for their potential impacts on non-life insurance consumption, which was represented by the amount of all directly earned premium of total non-life insurance consumption by all insurance companies in Thailand, published on the website of the Office of Insurance Commission (OIC). The research data was collected on a monthly basis for a 10 year period from 2002 to 2011. Multiple Regression analysis was used as the research methodology. The result suggested that four macroeconomic indices, i.e.: Coincident Index (from Business Cycle Index), Employment Rate (from Export Business Situation Index), Consumer Confidence Index, and Export Price Index, were found to have an impact on total nonlife insurance consumption in Thailand of around 84%. From this analysis, it can be concluded that some macroeconomic factors have an impact on non-life insurance consumption in Thailand.

ACKNOWLEDGEMENTS

I would like to take this opportunity to express my gratitude towards all those who gave me the possibilities to complete the thesis. First and foremost, I would like to express my deep appreciation to my advisor, Archan Preecha Vichitthamaros, for the support during my study. His patient guidance helped me to work through the project and complete it within the limited timeframe. Beside my advisor, I would like to thank the thesis committee, Archan Duanpen Teerawanviwat, for her comments and inspiration. Moreover, I wish to express my sincere thanks to the Department of Applied Statistics, National Institute of Development Administration, who provide the financial support to the project and gave me this opportunity to explore my ability as a researcher. In addition, Id like to thank all my friends and fellows who helped me during the study course. Especially, I would like to give my special thanks to my parents whose patient love and support enabled me to complete this work.

TABLE OF CONTENTS

Page

iii iv v viii ix

CHAPTER 1 INTRODUCTION 1.1 Background Statement and Significance of the Study 1.2 Research Objective 1.3 Scope of the Study 1.4 Expected Benefits and Analysis CHAPTER 2 LITERATURE REVIEW 2.1 Non-Life Insurance in Thailand 2.1.1 Fire Insurance 2.1.2 Automobile Insurance 2.1.3 Marine and Transportation Insurance 2.1.4 Miscellaneous Insurance 2.2 Non-Life Insurance Consumption in Thailand 2.2.1 Fire Insurance 2.2.2 Automobile Insurance 2.2.3 Marine and Transportation Insurance 2.2.4 Miscellaneous Insurance 2.3 The Theory of Business Economics 2.4 Macroeconomic Variables 2.4.1 Gross Domestic Product 2.4.2 Inflation

1 1 5 5 6 7 7 7 8 9 10 10 12 12 13 15 16 17 17 18

vi 2.5 Key Macroeconomic Indicators CHAPTER 3 RESEARCH METHODOLOGY 3.1 Research Methodology Framework 3.2 Conceptual Framework 3.3 Population Sampling and Methodology 3.4 Research Variable 3.4.1 Dependent Variable 3.4.2 Independent Variable 3.5 Data Collection 3.6 Data Analysis 3.6.1 Statistical Models 3.6.2 Data Analysis Tool 3.6.3 Data Analysis Procedure CHAPTER 4 RESULT OF THE ANALYSIS 4.1 Analysis Result of Total Non-life Insurance Consumption 4.1.1 Result of Correlation Analysis 4.1.2 Result of Stepwise Analysis 4.2 Analysis Result of Each Type of Insurance Consumption 4.2.1 Result of Correlation Analysis 4.2.2 Result of Stepwise Analysis 4.3 Summary CHAPTER 5 RESEARCH CONCLUSION AND DISCUSSION 5.1 Research Conclusion 5.2 Research Discussion 5.3 Recommendation 5.3.1 Recommendation from the research 5.3.2 Recommendation for further research 20 22 22 25 28 28 28 28 32 32 32 34 34 36 36 36 38 41 42 44 50 51 51 56 58 58 59

60 65 66 68

LIST OF TABLES

Tables

Page

1.1 Direct Premium and Net Written Premium Comparison 2.1 Comparison of Key Economic Indicators Worldwide and Thailand 3.1 The Comparison of Non-Life Insurance Premium between the Estimated by ThaiRe Research and Statistic Services and the Actual Data 3.2 Summary of Variables and Their Definitions

3 20 26

31

4.1 Correlation Analysis between Total Non-life Insurance Consumption 37 in Thailand and the Actual Indices 4.2 Correlation Analysis between Total Non-life Insurance Consumption 37 in Thailand and the Percentage Changes and Growth Rates 4.3 Total Non-Life Insurance Consumption Stepwise Analysis 39

4.4 Correlation Analysis between Total Non-life Insurance Consumption 44 in Thailand and the Percentage Changes and Growth Rates 4.5 Automobile Insurance Consumption Stepwise Analysis 45

4.6 Marine and Transportation Insurance Consumption Stepwise Analysis 47 4.7 Miscellaneous Insurance Consumption Stepwise Analysis 4.8 Summary 49 51

LIST OF FIGURES

Figures 1.1 Insurance Penetrations in Asian Countries Year 2010 2.1 Non-Life Insurance Consumption in Thailand Period 2001-2010

Page

2 11

2.2 Direct Premium Proportion of Non-Life Insurance in Thailand 2010 11 2.3 Direct Premium and Net Written Premium of Fire Insurance in Thailand during 2000-2010 2.4 Direct Premium and Net Written Premium of Motor Insurance in Thailand during 2000-2010 2.5 Direct Premium and Net Written Premium of Marine and Transportation Insurance in Thailand during 2000-2010 2.6 Direct Premium and Net Written Premium of Miscellaneous Insurance in Thailand during 2000-2010 2.7 Factors Impact Business Strategy 2.8 The Circular-Flow Diagram 3.1 Research Methodology 3.2 Conceptual Framework 16 18 24 27 15 14 13 12

CHAPTER 1

INTRODUCTION

1.1 Background Statement and Significance of the Study Insurance plays a vital role to both a nations economy and its societal development because of its many benefits. The main advantage of insurance is its utility to promote long-term financial stability and security of individuals and businesses. In other words, it helps entities recover financial loss due to unexpected perils such as floods, automotive collisions, earthquakes, and tsunamis. Moreover, insurance is considered to be one of the essential financial services to an economic system. (Brainard, 2008) Although insurance has many benefits to whole societies, historical statistics show that the consumption of insurance in Thailand is relatively low compared to that of its international companions. This metric is represented by the amount of gross premium written, also known as direct premium written, or the monetary consumption value of non-life insurance. The insurance penetration in Thailand, which is the ratio percentage of gross insurance premium to gross domestic product, or GDP, was 4.3% for the entire insurance industry, both life and non-life, in the year 2010. While it was 6.9% for the world as a whole, total insurance premiums indicated 60% lower consumption overall. For non-life insurance, the insurance penetration in 2010 was 1.7% in Thailand and 2.9% for the overall population, or 71% lower consumption. Figure 1.1 shows the comparison of insurance penetration in the emerging Asian countries in 2010. According to the figure, South Korea had the highest insurance penetration in non-life insurance while Bangladesh had the lowest. The insurance penetration percentage of Thailand was similar to that of Hong Kong, Singapore, Malaysia and China.

Figure 1.1 Insurance Penetrations in Asian Countries Year 2010 Source: Insurance Regulatory and Development Authority of India, 2011.

The significance of insurance penetration is that it indicates the contributions of insurance to a nations economic growth. Since GDP can be used as one of the leading indicators of a nations economic growth, insurance is included in the measurement of GDP. Insurance penetration, therefore, measures the proportion of insurance sectors to a nations GDP. As per the information stated in figure 1.1, the insurance penetration signifies that the amount of non-life insurance contribution to a countrys economi c growth was similar to that of Hong Kong, Malaysia and China.

Type of Insurance Policy TOTAL INSURANCE FIRE INSURANCE AUTOMOBILE INSURANCE Compulsory Insurance Voluntary Insurance MARINE INSURANCE Hull Insurance Cargo Insurance MISCELLANEOUS INSURANCE 2000 55,120 7,818 31,999 7,669 24,331 2,575 273 2,303 12,728

Direct Premium 2010 Growth Rate 125,087 126.93% 7,867 0.63% 74,614 133.18% 11,175 45.72% 63,439 160.74% 4,326 67.98% 398 45.97% 3,928 70.59% 38,279 200.75%

Net Written Premiums 2000 2010 Growth Rate 38,990 95,986 146.18% 4,841 5,760 18.99% 29,668 70,959 139.17% 7,331 10,972 49.66% 22,337 59,987 168.55% 1,232 2,417 96.26% 51 116 129.12% 1,181 2,301 94.85% 3,249 16,850 418.60%

According to the annual report of the OIC in December 2010, there were 70 active non-life insurance companies operating in Thailand. Of these, 59 companies were domestic companies (legally registered in Thailand), 5 companies were foreign branches, 5 companies were health insurance companies, and 1 company was a reinsurance company. One company was withdrawn from the study due to financial insolvency (Office of Insurance Commission, 2011). The number of insurance companies is changing almost every year in the recent past due mostly to insolvency reasons; however, the amount of premium and the number of policies issued have been increasing significantly. During the past decade, non-life insurance consumption in Thailand has dramatically increased. In the year 2000, the non-life insurance gross premium was THB 48,700 million whereas in the year 2010, it was THB 125,087 million, which indicated a 157% increase for the entire non-life insurance industry. Of these amounts, the net premium had increased from THB 37,277 million in the year 2000 to THB 95,986 million, which equaled a 158% increase. In addition, the numbers of policies also increased from 14,694 million to 37,609 million, a 156% increase. Moreover, the total sum insured of all types of non-life insurance had increased from THB 19,180 billion to THB 27,570 billion, or about 44%. Please note that these figures exclude Thai Reinsurance Public Co., Ltd. From this data, it shows that the consumption of non-life insurance had increased over the ten-year period.

4 Macroeconomics is the study of the economic system as a whole. The goal of macroeconomic study is to explain the changes to a nations economy that affects many households, firms, and markets simultaneously, such as the forces that drive household consumption to increase, etc. Economists monitor and investigate the state of the overall economy through macroeconomic factors, which are often called, macroeconomic indicators. These include: Gross Domestic Product (GDP), unemployment rates, investment, consumption, etc. Macroeconomic factors are considered to impact industry and hence, can be used to measure a societys overall economic well-being. (Mankiw, 2008: 510-511 and Barro, 2008: 23) As per the researchers literature review, it is currently lacking the integrated analysis of macroeconomic factors that potentially impact non-life insurance consumption in Thailand. Regarding life insurance consumption, Vichit

Wattanabunjongkul (2006) studied the factors affecting life insurance premiums. However, most of the studied factors were not macroeconomic factors (inflation rate was the only macroeconomic factor that was included). The result suggested that life insurance premiums were negatively related to inflation rates. However, life insurance characteristics are different from those of non-life insurance such as: coverages, terms and conditions, coverage period, etc. (Rejda, 2008: 25). Therefore, the result did not imply that it has similar impact to non-life insurance premium consumption. Nevertheless, the ThaiRe Research and Statistic Services, which issues Thai Non-Life Insurance Business Report each year for those individuals and businesses that require such information, foresaw the highly volatile economy in Thailand, which could change business strategic management in many industries including non-life insurance. Therefore, they published an article titled, Non -life Insurance Business Trend Report 2009-2010 on Insurance Journal issue no. 105 owned by the General Insurance Association (GIA). The article provided estimates of non-life insurance consumption in Thailand for the year 2009 and 2010 with the goal to anticipate the consumption trend of the industry. It assumed that many economic factors were related to the premium consumption. The actual results were different from the estimated boundary around 1%, which were considered minimal. Therefore, this study was conceptualized by using the study of ThaiRe as a model.

5 In conclusion, macroeconomics has impacts to the non-life insurance industry similar to that of other industries (Zweifel and Eisen, 2012: 6). However, there are many other factors that impact the state of a nations economy. Some may be considered to affect non-life insurance operating performance while some may not. This study, therefore, focuses on the study of macroeconomic factors that affect nonlife insurance performance. The result is expected to point out the impacting factors to be used as key indicators to non-life insurance consumption trend.

1) This

research

studied

non-life

insurance

consumption

from

macroeconomic viewpoint. Therefore, the researcher studied overall consumption for the entire non-life insurance industry. Individual insurance companies were not be analyzed. 2) The dependent variables for this research was total non-life insurance consumption in Thailand which was gathered from the Office of Insurance Commission (OIC) in Thailand. 3) The independent variables for this study were selected from the Bureau of Trade and Economic Indices, Ministry of Commerce, Thailand, which were comprised of 8 indices with a total of 20 variables. The selected indices were: Consumer Price Index (CPI), Business Cycle Index (BCI), Inflation Cycle Index (ICI), Export Business Situation Index (ESI), Consumer Confidence Index (CCI), Producer Price Index (PPI), Construction Material Price Index (CMI) and Export and Import Price Index (EPI). The collected variables included the actual indices, the percentage changes from the previous month, and the six-month smoothed annualized growth rates.

6 4) This research studied data for a 10 year period, from 2002 to 2011. The data was collected on a monthly basis. Therefore, each variable has a total of 120 samples. 5) All data for this research was derived from secondary sources including: published papers, thesis, research papers, books, journals, news, websites and other related documents. Most of the data was derived from the Office of Insurance Commission (OIC) and the Bureau of Trade and Economic Indices.

1) To understand the pattern of non-life insurance consumption in Thailand, 2) To be able to indicate the macroeconomic factors which impact non-life insurance consumption in Thailand. 3) To understand the impact of macroeconomic factors on non-life insurance consumption in Thailand.

CHAPTER 2

LITERATURE REVIEW

Non-life insurance, also known as property and casualty insurance, refers to the insurance coverage that is not life insurance but instead covers such things as automobiles, buildings, and hulls. In addition, it also covers liability damages and personal health (Rejda, 2008: 26). Non-life insurance usually provides coverage for one year only, unlike life insurance which allows an insured to obtain insurance coverage longer than one year. The policy will be renewed every single year, except for some types of policy, e.g. Construction All Risk insurance (CAR) which is nonrenewable. There are many types of non-life insurance coverage; however, non-life insurance in Thailand is classified into four main classifications by the Office of Insurance Commission (OIC) as follows:

2.1.1 Fire Insurance Fire insurance provides coverage for loss or damages to an insured property arising directly from three main causes: fire, lighting, and explosion caused directly by domestic gas usage. The insurance could also include other perils which are specifically stated in the policy, e.g. water damage, electrical injury, flood, etc. However, there are some exclusions under the policy, such as explosions following the fire, earthquake, spontaneous combustion and others, as stated in the policy.

8 In Thailand, the main target customers for this policy are homeowners. Fire insurance policies for homeowners provide coverage to properties for residential useonly. It is corporately developed by Office of Insurance Commission (OIC) and General Insurance Association (GIA) with the purpose of designing coverage specifically for homeowners risks. This is because homeowners fire risk exposure is considered lower than others, i.e. hotel, industrial, office. Moreover, there are six main risks covered under fire insurance policies for homeowners which are: fire, lightning, explosions, damages caused by vehicles or animals, damages caused by aircrafts and water damage. The insured could also purchase additional coverage such as: electrical injury, flood, strike and riots, etc. (Office of Insurance Commission, 2012c).

2.1.2 Automobile Insurance Automobile insurance, sometimes called motor insurance, protects the insured against any loss or damages of the insureds vehicle. There are basically two types of motor insurance policies in Thailand; compulsory and voluntary. All legally registered motor vehicles, including motorcycles, in Thailand (except state vehicles) must be insured under the Protection for Motor Vehicle Accident Victims Act, enacted since 1992. The Act made provisions setting a Victims Compensation Fund to protect all victims, i.e. drivers, passengers, pedestrians, and cyclists, who get injured by motor accidents including the vehicle owners. However, the insurance covers only bodily injury or death, excluding property damage, to the victims of road accidents within the stated specified amounts. (Office of Insurance Commission, 2012a). In addition, the insurance compensates on a no-fault basis, which means if an accident occurred, there is no need to prove negligence. Furthermore, all injured parties would get the same coverage and compensation. Based on the Act provisions stated above, the number of compulsory motor insurance consumption is dependent primarily on the number of motor vehicles registered, both for private and public uses. Moreover, the premium for compulsory motor insurance is stated as tariff rate, which means the premium rate is fixed, i.e. the same type of vehicles pays the same premium amount regardless of brand, vehicle prices, etc. For example, the premium

9 amount for all personal use sedans with not more than seven passenger seats, regardless of brand, selling price, etc., is THB 600 per vehicle. The premium is considered minimal compared to other types of policies. (Lawrence, 2004: 85). Voluntary motor insurance, on the other hand, is not a requirement to vehicle owners. The insurance coverage is classified into four sections: Third Party Bodily Injury (TPBI), Third Party Property Damage (TPPD), Own Damage (OD) and Fire and Theft (F&T). It could also be divided into three different types of policies ranging from the broadest coverage to the least coverage. The broadest coverage policy, which is also called, comprehensive motor insurance, covers all four coverage categories and has the highest premium rate. The second provides coverage for third party liability section (TPBI and TPPD) and the vehicle damaged (OD) caused by fire or theft only; while the third provides coverage for third party liability (TPBI and TPPD) only and has the lowest premium rate. However, the voluntary motor policy is considered to be an excess policy; the claim amount will be paid on top of the compulsory insurance. Moreover, the premium for voluntary insurance is also stated as tariff rate. (Office of Insurance Commission, 2012a). However, there are many factors affecting premium rate for this type of policy, e.g. type of vehicles, vehicle age, driver age, occupation, experiences, etc.; therefore, premium rates are varied among individual policies. (Lawrence, 2004: 84).

2.1.3 Marine and Transportation Insurance This insurance is related to marine operation and is classified into two types: Hull and Cargo. Hull insurance covers loss or damages to an insured hull arising from various perils such as collision, stranding, windstorm, etc. The coverage for hull can be chosen as an all risk or name perils policy. There are basically three types of hull insurance. The first is an all-risks policy which protects the insured hull caused by all perils that are not specifically excluded in the policy. This policy has the highest premium rate among other types of marine insurance. The second is with average (W.A.) which covers loss to the insured hull for total loss and partial loss. The third is free from particular average (F.P.A.) which protects the hull for total loss only. This provides the least coverage and has the lowest premium rate. (Office of Insurance Commission, 2012i).

10 Cargo insurance, however, covers loss or damages to cargo during marine transit. The causes of coverage is called, The Institute Cargo Clause (ICC) and is divided into three clauses: ICC A, ICC B, and ICC C. Clause A is the broadest type of coverage, an all risks policy, which covers loss or damages caused by all external causes that are not specifically excluded in the policy. Clause B and C have lower coverage; Clause B has lower coverage than Clause A, and Clause C has the least coverage. (Office of Insurance Commission, 2012i).

2.1.4 Miscellaneous Insurance This insurance protects broader perils than other types of policies in Thailand because all other insurances, which are not included in the above three types of insurance, are included under this category. The examples of miscellaneous insurance are: all risk, burglary, money, public liability, construction all risk, etc. (Office of Insurance Commission, 2012j).

According to the statistical data presented by the Office of Insurance Commission (OIC), non-life insurance consumption in Thailand had an average growth rate of 9.96% per year in the past decade with an average direct premium of THB 89,000 Million. Figure 2.1 shows the pattern of non-life insurance consumption, comparing between direct premium and net written premium, from 2001 to 2010 in Million Baht. The figure indicates that non-life insurance consumption had increased continually with a relatively constant reinsurance costs and commission expenses, causing net premium written to grow at a relatively constant rate. As shown in figure 2.2, automobile insurances market share was about 60% of all non-life insurance industry. The second largest market share was pertaining to miscellaneous insurance with 27.97% proportion. The third largest share was fire insurance, which made up about 9%. While, the least market share in non-life insurance industry was marine coverage.

11

Figure 2.2 Direct Premium Proportion of Non-Life Insurance in Thailand 2010 Source: Office of Insurance Commission, 2012m.

With the trend of increasing consumption of the non-life insurance industry in Thailand, it is of most importance to understand the factors that affect insurance consumption both internally and externally.

12 2.2.1 Fire Insurance Fire insurance consumption in Thailand had been relatively stable during the past decade. Figure 2.4 shows premium consumption for fire insurance in Thailand during 2001-2010. The 10-year average direct premium of THB 7,530 million or 0.2% average growth per year. It had a 10-year average net written premium of THB 5,230 Million which equals approximately 1.51% growth per year. From the figure, the amount of gross premium and net written premium has increased in a relatively constant rate.

Figure 2.3 Direct Premium and Net Written Premium of Fire Insurance in Thailand during 2000-2010 Source: Office of Insurance Commission, 2012m.

2.2.2 Automobile Insurance Automobile insurance has an average direct premium of around THB 52,000 million and an average net written premium of around THB 50,000 million. Both average growth rates are 9.78% and 9.81%, respectively. It seems that the direct and net written premium have similar average growth. Overall, automobile insurance consumption has continually increased, as shown in figure 2.5. Starting in 2000, the average annual growth rate is roughly 9.8% for both direct and net written premium.

13 The trend line firmly suggests an increase in premium consumption for automobile insurance in Thailand. In addition, as automobile insurance had the highest consumption portion of all non-life insurance industry and a strong upward trend, it is considered significant to non-life insurance industry.

Figure 2.4 Direct Premium and Net Written Premium of Motor Insurance in Thailand during 2000-2010 Source: Office of Insurance Commission, 2012m.

2.2.3 Marine and Transportation Insurance Hull insurance consumption is considered minimal with only 0.42% premium consumption proportion of all non-life insurance industry in Thailand with. Also, it has an average THB 361 million in direct premium and THB 90 million in net premium written. The consumption factors are varied in the researchers opinion. However, it had a 10-year average premium growth rate of around 13% per year during the past decade. For cargo insurance, a 10-year average direct premium of THB 3,212 million with an average growth rate of 6.24% was identified. Additionally, it had a 10-year average net written premium of THB 1,949 million with an average growth rate of 8.13%. It seems that cargo insurance had a higher industry contribution than that of

14 hull insurance. It had about 4% consumption contribution for non-life insurance industry.

Figure 2.5 Direct Premium and Net Written Premium of Marine and Transportation Insurance in Thailand during 2000-2010 Source: Office of Insurance Commission, 2012m.

Nonetheless, marine insurance had a 10-year average direct premium of THB 3,573 million with an average growth rate of 6.52% per year. Also, it had a 10-year average net written premium of THB 2,039 million with an average growth rate of 8.27%, annually. From figure 2.6, the direct premium and net premium written of marine insurance in Thailand during 2001-2010 had much fluctuation.

2.2.4 Miscellaneous Insurance As the name suggests, miscellaneous insurance covers any insured risks that are not categorized as the other three types of coverage. This categorization pertains to the second largest consumption proportion of non-life insurance industry, which makes up 28% of the industry. The 10-year average direct premium was THB 25,271 million with an average growth rate of 16.7% per year. The 10-year average net written premium was THB 9,422 million with an average growth rate of 19.21%,

15 annually. However, as shown in figure 2.6, the gap between direct premium and net written premium was wide during the study period. As the net written premium is the premium after the deduction of reinsurance costs and other expenses, the figure signifies that the costs of reinsurance and other administrative expenses had increased. As the information from other policies stated above, it is assumed that the expenses had been constant. This implies an increasing reinsurance portion for miscellaneous insurance; which can also be implied that there is room to grow for miscellaneous insurance for Thai non-life insurance industry.

Figure 2.6 Direct Premium and Net Written Premium of Miscellaneous Insurance in Thailand during 2000-2010 Source: Office of Insurance Commission, 2012m.

The theory of business economics is the study of the impact of economics on business operations, both internally and externally. The theory helps identify the economic factors influencing business strategies, operations and environments.

16

Figure 2.7 Factors Impact Business Strategy Source: Harris, 2001: 11.

Figure 2.7 shows the factors affecting business strategy and hence, business operations. As shown above, business economics is one of the main factors affecting how a company constructs its business strategy. In other words, business economists try to explain how an economy works and how it affects businesses. The figure categorizes economics into three broad categories, which are: microeconomics, macroeconomics and international trade. From the above figure, macroeconomics impacts economic environment and hence, it impacts how an organization identifies its business strategy. In other words, macroeconomics indirectly impacts a companys strategic management. (Harris, 2001: 10). Since insurance follows a business model, the theory of business economics could also be applied to insurance business. Therefore, the theory of business economic indicates that insurance, being a business, is also affected by macroeconomics.

2.4.1 Gross Domestic Product (GDP) Gross Domestic Product is defined as the market value of all final goods and services produced within a country in a given period of time. (Mankiw, 2008: 510) To better understand GDP, we will explore its several components. First, its value is based on market price; or the prices that consumers are willing to pay for products or services in the consumer market. The market price of each product that contributes to the value of GDP should not be the same. Second, it includes the value of all final goods and services produced. The valuation of GDP counts all final tangible goods and intangible services. The calculation of GDP does not include unfinished goods and services or their intermediate steps. Third, the products or services produced in a country are counted within a given period of time, usually in one year. Each country has its own GDP as one of its economic indicators. The valuation of GDP measures two things: national income and national expenditures. Figure 2.8 illustrates the flow diagram of national income and expenditures among many parties. According to the figure, the income and expenditures are circulated from one party to another through the purchase of goods and services within a country. All flows of inputs and outputs measures the valuation of GDP.

18

2.4.2 Inflation Inflation is defined as an increase in the overall level of prices in the economy. (Mankiw, 2008: 13). The concept presented by inflation is simply said that the price of goods and services purchased today may not be the same in the near future; it could be subject to change due to the level of prices and the value of money has changed. In order to understand inflation, the view of the quantity theory of money should be first established. The theory states that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate. (Mankiw, 2008: 667). Simply stated - the amount of money available in the market determines its value. This can be explained by the

19 theory of supply and demand. Assuming money demand is constant, an increase in money supply forces the value of money to a new level. (Mankiw, 2008: 668). When the quantity of money supply is increased, which is regulated by the Federal Government, or the Bank of Thailand (BOT) in the case of Thailand, it reduces the value of money. When the value of money is reduced, it stimulates the increase in price level and hence, generates inflation. So, what constitutes the inflation in the real economic world? Barro (2008: 266) suggests factors that potentially affect inflation rate include: interest rate, expected inflation rate, indexed bonds, consumer price index (CPI), money demand and supply and money growth rate. Harris (2001: 284) suggests the factors causing inflation rate include: non-monetary demand, monetary demand, money supply, wage cost, monetary policy, fiscal policy and exchange rate management policy. In summary, what causes inflation to shift is what causes the price index to rise to a new level. Therefore, in order to measure the inflation rate, one must first measure the price level of goods and services in an economy. Mankiw (2008: 530) recommends the tool to be used to measure inflation rate in an economy is called, Consumer Price Index (CPI). It is defined as a measure of the overall cost of goods and services bought by a typical consumer. The inflation rate is then calculated as the percentage change in the price index from the preceding period. There are other tools which can be used to measure inflation rate such as Producer Price Index (PPI), GDP Deflator, etc. The current Thai economic situation uses CPI as a leading indicator for inflation rate (BOT). The inflation rate is one of the key leading indicators of a nations economy because high inflation may pose several problems. By definition, inflation erodes living standards as the price level shifts higher; consumers and businesses are required to work harder and earn higher wages in order to maintain their living standard. While it may promote economic growth, it creates uncertainty. Moreover, the impact to the businesses sector is that it increases the cost of doing business. Even though the cost of doing business could be shifted to consumers in the mean of raising product prices, it could turn into a new type of cost, e.g. wage cost. Therefore, inflation rate could be harmful to individuals and businesses.

Key economic indicators in this study are referred by different organizations. Lets first review the U.S. key economic indicators as recommended by Baumohl (2008: 8-9) the chief global economist at The Economic Outlook Group, written in his book titled, The Secrets of Economic Indicators. In the book, the author suggests that real GDP and its components can be used to indicate 17% of U.S. economic health, the highest contributor to the economy. Business fixed investment, ranked the second contributor to U.S. economy, can be used to explain 17% of the economic situation, similar to that of government spending. As GDP represents the amount of consumer consumptions, as implied by the figure, the consumer consumption contributes the highest proportion of U.S. economy comparing to other sectors i.e. business, and government. In addition, the net exports, the amount of imports less the amount of exports, have negative impacts to U.S. economy.

Key Macroeconomic Indicators Worldwide Thailand World Trade Volume Population Economic Growth Rates Inflation Rates (CPI) Balance on Current Account Unemployment Rate Interest Rates Exchange Rates World Grain Situation GDP Inflation Rates (CPI) Balance of Payments External Debts Interest Rates Exchange Rates International Reserves Internal Reserves Exports Imports

21 In summary, Baumohl (2008: 8-9) suggests five key indicators to track U.S. economy which are: real GDP and its components, business fixed investments, change in business inventories, government spending, and net exports. Each indicator can be analyzed using many indexes and statistical data. The sign of price pressure, the increase in price index, can also be analyzed by the amount of inflation, with many key indicators. In Thailand, the BOT recommends a number of key macroeconomic indicators published on its website as shown in table 2.1, but there are in total 11 indicators that are deemed significant to Thai economy. Comparatively, most economic indicators of the BOT are the same as the Baumohls recommendation. Inflation rates, Balance of payments, interest rates, and exchange rates are deemed major economic indicators.

CHAPTER 3

RESEARCH METHODOLOGY

The main objective of this study was to analyze the impact of macroeconomic factors on non-life insurance consumption in Thailand. The main reason for this objective was that macroeconomics is viewed as having an impact overall on households, businesses, and governments. (Mankiw, 2008: 28). The analysis of such an impact is deemed significant for Thais insurance industry to be aware of such a potential impact. The research problem for this study was to indicate one or more macroeconomic factors that currently effect non-life insurance consumption in Thailand. The answer for this question leads to the improvement of awareness and understanding of the insurance industry regarding the rapidly changing economic conditions that have an impact on Thais state of economy and hence, affects the overall insurance industry. The research was conceptualized by using the assumptions of the ThaiRe Research and Statistic Services, which listed macroeconomic factors, which were considered having an impact on the non-life insurance premium. They were also used to estimate the premium in the year 2009 and 2010. These variables were assumed to have an impact on non-life insurance consumption. Further review of related literature assisted in formulating research problems. It was found that, in Thailand, the Bureau of Trade and Economic Indices had provided the economic analysis as the key economic indicator; after reviewing literatures, it was found that there was no additional research studying the impact of key macroeconomic indices to non-life insurance industry in Thailand. Therefore, this study was conceptualized using the research published by ThaiRe.

23 Quantitative Research was used for this study. The variable data was collected from secondary sources and analyzed using statistical software. The dependent and independent variables for this study, namely non-life insurance consumption and macroeconomic factors, are normally presented in terms of numerical value published from the related organization, i.e. the Office of Insurance Commission (OIC) and the Bureau of Trade and Economic Indices. Figure 3.1 summarizes the research methodology for this study. This research studied a time series data for a 10 year period as a sample size. The macroeconomics focuses on the overall state rather than each individual unit. Therefore, all non-life insurance consumptions from the whole industry in Thailand were used to analyze the impact. Moreover, all the data was collected on a monthly basis in order to obtain 120 samples for the analysis.

24

Macroeconomic Factors (Independent Variables) Non-Life Insurance Consumption (Dependent Variables)

Source: Bank of Thailand (BOT) Bureau of Economic Indices

Source: Office of Insurance Commission (OIC) General of Insurance Association(GIA)

Data Analysis

Conclusion Correlation Coefficient Analysis Multiple Regression Model Analysis Recommendation

Macroeconomic factors were assumed to affect non-life insurance premiums in the years 2009 and 2010. This was shown by ThaiRe Research and Statistic Services, published in Insurance Journal issue no. 105, by the General of Insurance Association (GIA), and was used as a model to construct the conceptual framework. The reason that the macroeconomic factors were based on such an assumption was because the estimated premiums in the year 2009 and 2010 were close to the actual data. Table 3.1 shows the comparison between the estimated and the actual non-life premiums in the years 2009 and 2010. The estimate of 2009 and 2010 were based on the actual premium in the year, 2008. The differences between the estimate and the actual were around 1% in the year 2009 and around 9% in the year 2010, which were considered relatively low. Based on this information, it signifies that the macroeconomic factors used to estimate the premiums were having relationships with non-life insurance premium. Therefore, the model was used to define conceptual framework. From the model above, it was found that macroeconomic factors should have a relationship with non-life insurance industry. Therefore, these selected

macroeconomic factors were used as an assumption to select the independent variables at the Bureau of Trade and Economic Indices.

26 Table 3.1 The Comparison of Non-Life Insurance Premium between the Estimate by ThaiRe Research and Statistic Services and the Actual Data

Type of Insurance Policy Fire Marine and Transportation Automobile Miscellaneous TOTAL Estimate 7,709.00 3,652.00 63,263.00 34,292.00 108,916.00

2009 Actual Differences 7,749.00 40.00 0.52% 3,633.00 -19.00 -0.52% 65,430.00 2,167.00 3.43% 33,188.00 -1,104.00 -3.22% 110,000.00 1,084.00 1.00%

Unit:Million Baht 2010 Actual Differences 7,867.00 -160.00 -1.99% 4,326.00 499.00 13.04% 74,614.00 9,076.00 13.85% 38,279.00 633.00 1.68% 125,086.00 10,048.00 8.73%

27

Consumer Price Index Business Cycle Index Inflation Cycle Index Export Business Situation Index Consumer Confidence Index Producer Price Index Construction Material Price Index Export and Import Price Index

Non-Life Insurance Consumption Fire Insurance Direct Premium Automobile Insurance Direct Premium Marine and Transportation Insurance Direct Premium Miscellaneous Insurance Direct Premium

Figure 3.2 shows the conceptual framework for the analysis of the impact of macroeconomic factors to non-life insurance in Thailand. The independent variables were assumed to have an impact on non-life insurance consumption. However, the conceptual framework may have some limitations and may not be considered the most perfect framework for the study because of the following reasons. First, the selected macroeconomic factors may be correlated, which means, they were having a relationship with each other which causes the statistical testing to be inaccurate. This problem will be eliminated by analyzing Variance Inflation Factor (VIF) of each independent variable in order to review the existing multicollinearity problem. Second, the framework may not be applicable to future application. Due to the highly dynamic state of todays economic world, factors are subject to change simultaneously.

The population for this study was non-life insurance companies in Thailand. In order to obtain the most relevant data, the researcher selected the most recent completed data; therefore, the data in the period from 2002 to 2011 was selected, on a monthly basis for this analysis. The number of active companies may vary each year during the study period; however, this issue did not affect the study result because the research studied from macroeconomics viewpoint.

3.4.1 Dependent Variable In this study, the dependent variable represented non-life insurance consumption in which the researcher defined as, the amount of insurance purchased in the whole industry throughout the study period. Regardless of which company a consumer purchased his insurance coverage from, his data had been gathered for this analysis. Therefore, non-life insurance consumption was represented by the amount of direct premium written by the whole non-life insurance industry. Direct premium written is the original amount of premium received by an insurer before making any adjustments for reinsurance costs and loss reserves. (Office of Insurance Commission, 2012k). The direct premium represents the monetary amount of consumer consumption for non-life insurance. This is referring to direct premium to non-life insurance companies and health insurance companies. The study does not include reinsurance premium.

3.4.2 Independent Variable The independent variables, which were used to analyze the impact to non-life insurance consumption in Thailand, were selected based on the assumptions set to estimate non-life insurance premiums for the years 2009 and 2010 by the ThaiRe Research and Statistical Services. They were determined to affect the state of Thai economy.

29 The independent variables were classified into 8 main categories collected based on macroeconomic indices published by the Bureau of Trade and Economic Indices as follows: 3.4.2.1 Consumer Price Index It is an index used to measure the change in price level of consumer goods and services. In Thailand, the index does not include the measurement of raw food and goods and services in energy sector. The actual index value and the percentage change from the previous month were collected for this study. 3.4.2.2 Business Cycle Index It is an index used to measure the cycle components of economic variables. It reflected the recession and expansion of business cycle. The index could be used to predict future state of economy because it reflects the real business cycle. The coincident index value, the percentage change from the previous month, and the six-month smoothed annualized growth rate were collected for this study. 3.4.2.3 Inflation Cycle index It is classified as Reference Inflation Index and Leading Inflation Index. Reference Inflation Index is a six-month smoothed annualized growth rate of Consumer Price Index. While Leading Inflation Index was used to predict inflation cycle in advance of three to six months. The actual Reference Inflation Index was collected for this study. Moreover, the actual Leading Inflation Index, its percentage change from the previous month, and the six-month smoothed annualized growth rate were collected from this study. 3.4.2.4 Export Business Situation Index It is measured by the survey of entrepreneurs for their opinions regarding economic factors that could potentially impact their business. The index is used as an early-warning system for short economic indicator. The index is classified as Total Export, New Export Orders, Inventories, and Employment. Total Export index is used to measure the amount of net exports; New Orders index refers to the amount of new export orders; Inventories index refers to the amount of export inventories remained at that period and; Employment index refers to the current employment situation. Note that these indices are not based on facts but on the

30 opinions of export businesss entrepreneurs. These four indices were collected for this study. 3.4.2.5 Consumer Confidence Index It is an index used to measure the confidence of consumers toward the state of economy. When consumers have high confidence over the nations economy, they are likely to spend more and hence, the business situation could be better. The actual index was collected for this study. 3.4.2.6 Producer Price Index It is used to measure the change in price level of goods and services of domestic producers. The actual index and the percentage change from the previous month were collected for this study. 3.4.2.7 Construction Material Price Index It is used to measure the change in price level of average construction materials in Thailand. The actual index and the percentage change from the previous month were collected for this study. 3.4.2.8 Export and Import Price Index It is used to measure the change in price level of export price and import price. Free on broad (F.O.B.) price was used for export price index; Cost, Insurance, and Freight (C.I.F.) price was used for import price index. Both actual indices were collected for this study.

The dependent and independent variables and their definitions for the model are listed in table 3.2.

Descriptions

X1 X2 X3 X4

Consumer Price Index Consumer Price Index - Percent changed from previous month Business Cycle Index - Coincident Index Business Cycle Index - Six-month smoothed annualized growth rate

X5 X6 X7 X8

Business Cycle Index - Percent changed from previous month Inflation cycle index - Reference Inflation Index Inflation cycle index - Leading Inflation Index Inflation cycle index - Six-month smoothed annualized growth rate

Inflation cycle index - Percent changed from previous month Export Business Situation Index Export Business Situation Index - New Export Orders Index Export Business Situation Index - Inventories Index Export Business Situation Index - Employment Rate Consumer Confidence Index Producer Price Index Producer Price Index - Percent changed from previous month Construction Material Price Index Construction Material Price Index - Percent changed from previous month

X19 X20

1) Non-life insurance consumption, which was represented by direct premium written, was gathered from annual reports and historical data published on the Office of Insurance Commission (OIC) website. Monthly data was collected. 2) The independent variables were collected from the website of the Bureau of Trade and Economic Indices.

3.6.1 Statistical Models 3.6.1.1 Pearsons Product Moment Correlation Coefficient () The coefficient of correlation was used to analyze the existence and the strength of the relationship between the dependent variable and the independent variables. The use of this model had two main objectives: 1) To analyze the existence and the strength of the linear relationship between total non-life insurance consumption and each independent variable. 2) To prepare the variables to be used for Multiple Linear Regression Model (MLR) analysis because one of the assumptions of data to be used for MLR analysis is that the independent variable has a linear relationship with the dependent variables. The calculation of the correlation coefficient was split into two categories. First, each independent variable was paired with non-life insurance consumption, the independent variable. The correlation coefficient of each pair was calculated to analyze whether each individual variable has a linear relationship with total non-life insurance consumption and also to measure the strength of the relationship. Second, each individual independent variable was paired with each other in order to the relationship among them. The result of the correlation coefficient calculation was determined by its statistical significance by computing p-value to test the hypothesis.

33 In this study, the significance of the study was = 0.05. Therefore, the p-value which was less than 0.05 is deemed significance and accepts the hypothesis (H1). In this study, the independent variables were classified into two main categories. The first category was the actual indices which were referred to the actual indices each month from each type of indices. The second category was the percentage changes from the previous month and the six-month annualized growth rates which were shown in a form of percentage. Since there were twenty variables in this study, some of them were from the same sources. For example, the actual consumer price index and its percentage change from the previous month were collected for this study; the correlation analysis would help to select which type of variable to be studied in the analysis. 3.6.1.2 Multiple Linear Regression Model (MLR) Multiple Regression Analysis model involves the use of more than one variable to predict the dependent variable. It is used to model the linear relationship between one dependent variable and two or more independent variables. Based on the review of literatures, it was assumed that there were many economic factors affecting non-life insurance consumption. In order to analyze the impact of so many variables, the model was deemed to be the most suitable model for this study. In addition, the analysis of the relationship between macroeconomic factors and non-life insurance consumption used the Ordinary Least Square (OLS) method to estimate the parameters in the Multiple Regression Model analysis. The method of least square used to fit this relationship is typically by way of minimizing the sum of the squared errors between the observed values and the value that would be fitted under the assumed relationship in order to create a straight line equation model. By this mean, the error of estimating the dependent variable is minimized. In this study, stepwise analysis was used as a method of Multiple Regression analysis. The stepwise procedure would select the variable into the model using alpha to enter at 0.15 and alpha to remove at 0.15. The model with the highest rsquare would be selected for detail analysis whether it was at an acceptable level.

34 One issue of concern for the analysis using MLR is Multicollinearity, in which the independent variables were highly intercorrelated to each other, which caused the model to be inaccurate. In this study, the researcher was aware of the multicollinearity problem and, therefore, used the Variance Inflation Factor (V.I.F.) to analyze the multicollinearity problem of the model. If the VIF was higher than 4, the variable would be eliminated from the model and the model would be retested. In conclusion, this study used stepwise procedure as the main data analysis. After getting an equation from stepwise analysis, each model was reviewed and retested until the model was at an acceptable level.

3.6.2 Data Analysis Tool This study used Minitab 16 Statistical Software to analyze the data and hypothesis based on statistical models, as described above.

3.6.3 Data Analysis Procedure The analysis process was listed as follows: 3.6.3.1 Step 1 All variables were analyzed using correlation matrix in order to review their relationship with total non-life insurance consumption. Since the selected independent variables consist of the actual indices, and their percentage changes from the previous month and their annualized growth rates, it was highly necessary to examine the correlations before further choosing the variables for regression analysis. The purpose of using correlation analysis was to select the appropriate variables, either the actual indices or the percentage changes from the previous month and the growth rates, to review which type of data suits the model. 3.6.3.2 Step 2 Once the correlation among variables was analyzed, the result would show that which type of data should be used for the model. The type of data of selected variables was further studied in stepwise analysis. 3.6.3.3 Step 3 After getting the results from the stepwise analysis, the model with the highest R-square was selected to further study. Correlation among variables of the

35 selected model was further analyzed. The variables which were not related to the independent variable were removed from the model. Thereafter, the model would be retested. After retesting without using unrelated variables, the model would be reviewed again to investigate whether there were any multicollinearity problems among variables by examining Variance Inflation Factor (VIF). Ideally, VIF value higher than 4 should be further investigated; VIF value higher than 10 is required corrective action. Therefore, the VIF value around 4 was acceptable in the study. If there was VIF value higher than 4 in the equation, the variable which had the highest VIF would be eliminated from the analysis one at a time until an acceptable result was obtained. 3.6.3.4 Step 4 The final equation was generated after all variables were concluded at an acceptable level, i.e. p-value of each constant value and each independent variables were less than 0.05, VIF of each independent variables were less than 4, p-value of ftest in the analysis of variance was less than 0.05 and Durbin-Watson statistic was close to 2. Standardized Coefficient was also calculated in order to review which of the variables had the greatest effect on total non-life insurance consumption in Thailand.

CHAPTER 4

In the study of the impact of macroeconomic factors on non-life insurance consumption in Thailand, the data analysis will be presented in the following sequences: 4.1 Analysis Result of Total Non-life Insurance Consumption 4.2 Analysis Result of Each Type of Insurance Consumption 4.3 Summary

4.1.1 Result of Correlation Analysis Step 1 of data analysis was to investigate correlation among all variables in order to examine the relationship between total non-life insurance consumption and all indices. The result is shown in table 4.1 and 4.2. Thirteen variables were the actual indices and seven variables were the percentage changes from the previous month and the six-month smoothed annualized growth rates. The correlation analysis was made in order to analyze which type of data should be used for the study. From the correlation analysis above, it was found that nine out of thirteen actual indices, or approximately 70%, were related to total non-life insurance consumption in Thailand, namely, X1 Consumer Price index, X3 Coincident index (from Business Cycle index), X12 Inventories index (from Export Business Situation index), X13 Employment rate (from Export Business Situation index), X14 Consumer Confidence index, X15 Producer Price index, X17 Construction Material Price index, X19 Export Price index, and X20 Import Price index.

37 Table 4.1 Correlation Analysis between Total Non-life Insurance Consumption in Thailand and the Actual Indices

Variables X1 X3 X6 X7 X10 X11 X12 X13 X14 X15 X17 X19 X20 Consumer Price Index Business Cycle Index - Coincident Index Inflation cycle index - Reference Inflation Index Inflation cycle index - Leading Inflation Index Export Business Situation Index Export Business Situation Index - New Export Orders Index Export Business Situation Index - Inventories Index Export Business Situation Index - Employment Rate Consumer Confidence Index Producer Price Index Construction Material Price Index Export Price Index Import Price Index

Y 0.887* 0.709* 0.171 0.029 -0.099 -0.137 -0.236* -0.263* -0.555* 0.884* 0.745* 0.905* 0.895*

Table 4.2 Correlation Analysis between Total Non-life Insurance Consumption in Thailand and the Percentage Changes and Growth Rates

Variables X2 X4 X5 X8 X9 X15 X17 Consumer Price Index - Percent changed from previous month Business Cycle Index - Six-month smoothed annualized growth rate Business Cycle Index - Percent changed from previous month Inflation cycle index - Six-month smoothed annualized growth rate Inflation cycle index - Percent changed from previous month Producer Price Index - Percent changed from previous month Construction Material Price Index - Percent changed from previous month

On the other hand, only one percentage changes and annualized growth rates, or approximately 15%, was found to have no correlation with total non-life insurance

38 consumption in Thailand which was X4 Six-month smoothed annualized growth rate of Business Cycle index. From the correlation analysis of the actual indices, it was found that total nonlife insurance consumption had a positive relationship with Consumer Price Index (X1), Coincidence Index (X3), Producer Price Index (X15), Construction Material Index (X17), Export Price Index (X19), and Import Price Index (X20). If these variables increase, the consumption would largely increase. However, it was found that the insurance consumption was negatively related to Inventories Index (from Export Business Situation index) (X12), Employment Rate (from Export Business Situation index) (X13), and Consumer Confidence Index (X14). If these variables increase, the consumption would decrease. From the correlation analysis of the percentage changes and growth rates, it was found that only the six-month smoothed annualized growth rate of Business Cycle index was related to total non-life insurance consumption in Thailand. In addition, it had a weak negative relationship which means that if the variable increases, the insurance consumption would slightly decrease. Therefore, the analysis above showed that the actual indices should be used to study the impact analysis to non-life insurance consumption in Thailand, instead of the percentage changes and growth rates because they had a better relationship with the dependent variable. Therefore, thirteen indices were used in the stepwise analysis which were: Consumer Price Index (X1), Coincidence Index (X3), Reference Inflation Index (X6), Leading Inflation Index (X7), Export Business Situation Index (X10), New Export Order Index (X11), Inventories Index (X12), Employment Rate (X13), Consumer Confidence Index (X14), Producer Price Index (X15), Construction Material Index (X17), Export Price Index (X19) and Import Price Index (X20).

4.1.2 Result of Stepwise Analysis In the stepwise analysis, eleven steps were recommended. Step 10 had the highest R-square; therefore, it was selected for further analysis. There were eight variables having an impact on total non-life insurance consumption in Thailand, i.e. X3 Coincident index (from Business Cycle index), X7 Leading Inflation index (from Inflation Cycle index), X11 New Export Order index (from Export Business Situation

39 index), X13 Employment Rate (from Export Business Situation index), X14 Consumer Confidence index, X17 Construction Material Price index, X19 Export Price index, and X20 Import Price index. However, the model was unreliable because of having a high multicollinearity problem. The problem was examined by reviewing the Variance Inflation Factor (VIF). Correlation analysis was further required to analyze the model. The result showed that X7 and X11 were found to have no correlation with total non-life insurance consumption in Thailand; therefore, they were removed from the model. After the model was retested, the VIFs were at the high level. X20, which had the highest VIF, was removed from the model. After retesting, X17 had the VIF higher than 4; therefore, X17 was removed from the model. Finally, after removing 4 variables which were X7, X11, X17, and X20, the model was at an acceptable level. (See more detail in Appendix C)

Variables Constant X19 X3 X14 X13 Export Price Index Coincident Index Consumer Confidence Index Employment Rate

Beta Coef

P-value 0.000

VIF

Table 4.3 shows the result of stepwise analysis of total non-life insurance consumption in Thailand. Four variables were found to have an impact on total nonlife insurance consumption in Thailand, namely Export Price Index (X19), Coincident Index (X3), Consumer Confidence Index (X14), and Employment Rate (X13). The regression equation from the analysis was as follows:

Y = - 8171741 + 107313 (Export Price Index) + 67141 (Coincident Index) + 26786 (Consumer Confidence Index) - 46926 (Employment Index)

40 The model could be used to explain about 84.1% of total non-life insurance consumption in Thailand. The standard error of the estimate was 842,389. The intercept value was -8,171,741 which indicated that in the case that the four variables were zero or no values, the total non-life insurance consumption would be negative. However, this couldnt be the case because all variables involved in the economic activities; therefore, it is impossible that all four variables would be zero. Of all five impacting variables, three variables were positively related to total non-life insurance consumption in Thailand while one variable was negatively related. The positively related variables were Export Price index, Coincident index, and Consumer Confidence index. The negatively related variable was Employment Rate. Export Price index had the highest impact on total non-life insurance consumption in Thailand because of having the highest beta coefficient. It was positively related to the insurance consumption which could be interpreted that if Export Price index changes by one unit and other variables remain unchanged, total non-life insurance consumption in Thailand would directly change by 107,313. As the export price increases, business sectors need to increase their production and hence, purchase more insurance coverage. Consumer Confidence index was the second impacting variable of total nonlife insurance consumption in Thailand. It was positively related to the insurance consumption. If the variable changes by one unit and other variables remain unchanged, the insurance consumption would directly change by 26,786. As consumers have more confidence in the state of economy, they are willing to make more spending for goods and services. Insurance consumption is one of the increasing expenditures of consumers when the economy is peak. For example, when consumers purchase a new car, they also are required to purchase insurance coverage and the insurance consumption would increase. Coincident index was the third impacting variable that quantitatively effects the changes in total non-life insurance consumption in Thailand. If the index changes by one unit and other variables remain unchanged, the insurance consumption would directly change by 67,141. This index reflects a real business cycle. As the economy tends to be better, business sectors are willing to make more investment and need to purchase more insurance coverage for their businesses.

41 The last impacting variable was Employment rate. This was the only variable which had a negative impact on total non-life insurance consumption in Thailand. If the index increases by one unit and the other variables remain unchanged, the insurance consumption would decrease by 46,926. It was found from the correlation analysis that the variables from Export Business Situation Index were negatively correlated with total non-life insurance consumption in Thailand. The Export Business Situation index included the actual index, New Export Order index, Inventories index, and Employment rate. These indices were calculated by asking export business entrepreneurs to submit an online survey about their attitudes toward the nations economy. It was shown that the entrepreneurs believed that they would purchase less insurance if the economic conditions were better; however, the Coincident index suggested otherwise. In addition, the correlation with the Coincident index showed that there was no significant relationship between the Coincident index and the Employment rate (see more detail in Appexdix B). From the analysis, it could be concluded that the attitudes of export business entrepreneurs toward the nations economy were negatively related to the insurance consumption.

In this study, the research aimed to find out the impact of macroeconomic factors, namely the actual indices, on total non-life insurance consumption in Thailand. It was found that four variables of the actual indices were having an impact on the insurance consumption. In order to further analyze such impact, the actual indices were further analyzed with each type of insurance policies in Thailand. The analysis would show the impact of the actual indices on each type of insurance policies and also show how did the impact of each type of insurance policies contributed to the impact on total non-life insurance consumption in Thailand.

4.2.1 Result of Correlation Analysis Before further analyze the impact of the independent variables on other types of insurance policies in Thailand, correlation among variables were investigated and is shown in table 4.4.

42 Table 4.4 Correlation Analysis between Total Non-life Insurance Consumption in Thailand and the Percentage Changes and Growth Rates

Fire Variables X1 X3 X6 X7 X10 X11 X12 X13 X14 X15 X17 X19 X20 Consumer Price Index Business Cycle Index - Coincident Index Inflation cycle index - Reference Inflation Index Inflation cycle index - Leading Inflation Index Export Business Situation Index Export Business Situation Index New Export Orders Index Export Business Situation Index Inventories Index Export Business Situation Index Employment Index Consumer Confidence Index Producer Price Index Construction Material Price Index Export Price Index Import Price Index (Y2) 0.001 -0.102 -0.022 0.051 0.072 0.023 0.108 0.057 -0.042 0.013 -0.061 0.003 0.02

Auto (Y3) 0.903* 0.757* 0.193* 0.032 -0.061 -0.113 -0.245* -0.258*

Marine (Y4) 0.713* 0.784* 0.360* 0.092 0.061 -0.031 -0.076 -0.088

Misc. (Y5) 0.762* 0.559* 0.112 0.013 -0.162 -0.17 -0.215* -0.261* -0.432* 0.758* 0.618* 0.782* 0.776*

-0.590* -0.438* 0.899* 0.733* 0.774* 0.704* 0.918* 0.724* 0.905* 0.711*

For fire insurance consumption in Thailand, it was found that the relationship between fire insurance consumption and the actual indices was not significantly correlated. For automobile insurance consumption, ten variables were found to be correlated with the consumption. It was positively related to Consumer Price Index (X1), Coincidence Index (X3), Reference Inflation Index (X6), Producer Price Index (X15), Construction Material Index (X17), Export Price Index (X19), and Import Price Index (X20) that is if one of these variables increases and other variables remain unchanged, the consumption of automobile insurance would also increase. However,

43 it was negatively related to Inventories Index (X12), Employment Index (X13), and Consumer Confidence Index (X14) which means if one of these variables increases, automobile insurance consumption in Thailand would decrease. For marine and transportation insurance consumption, eight variables were found to be correlated to the consumption. It was positively related to Consumer Price Index (X1), Coincidence Index (X3), Reference Inflation Index (X6), Producer Price Index (X15), Construction Material Index (X17), Export Price Index (X19), and Import Price Index (X20) that is if one of these variables increases and other variables remain unchanged, the consumption of marine and transportation insurance would also increase. However, it was negatively related to Consumer Confidence Index (X14) that is if one of the variable increases, the consumption of marine and transportation insurance in Thailand would decrease. For miscellaneous insurance consumption, nine variables were found to be correlated with the consumption. It was positively related to Consumer Price Index (X1), Coincidence Index (X3), Consumer Confidence Index (X14), Producer Price Index (X15), Construction Material Index (X17), Export Price Index (X19), and Import Price Index (X20) that is if one of these variables increases and other variables remain unchanged, the miscellaneous insurance consumption would also increase. However, it was negatively related to Inventories Index (X12), and Employment Index (X13) which means if one of these variables increases, miscellaneous insurance consumption in Thailand would decrease. Of all the correlation analysis, there were seven variables which were common correlated variables to the consumption of automobile insurance, marine and transportation insurance, and miscellaneous insurance (fire insurance consumption was ignored because no indices were found to be correlated with.), namely, X1 Consumer Price Index, X3 Coincident Index (from Business Cycle Index), X14 Consumer Confidence Index, X15 Producer Price Index, X17 Construction Material Price Index, X19 Export Price Index, and X20 Import Price Index. All variables were positively related to all three insurance consumption except X14 Consumer Confidence Index which had a negative relationship with the insurance consumption.

44 4.2.2 Result of Stepwise Analysis After the correlation among variables was analyzed, thirteen actual indices were used to analyze in the stepwise analysis of each type of insurance policies in order to examine the impact of the indices on each type of insurance policies. The result was expected to show how the actual indices affect each type of insurance policies and eventually contributed to the impact on total non-life insurance consumption in Thailand. 4.2.2.1 Fire Insurance Consumption No variables were found to have an impact on fire insurance consumption in Thailand because all independent variables had no relationship with fire insurance consumption during the past decade, at 0.05 significance level, as shown in table 4.4. In the literature review, it was found that the consumption of fire insurance in Thailand in the past decade was stable even though the economic was swing. The research, therefore, concluded that macroeconomic indicators had no impact on fire insurance consumption in Thailand. 4.2.2.2 Automobile Insurance Consumption In the stepwise analysis, there were nine steps resulted. Step 9 was selected because it had the highest r-square. In step 9, nine variables were suggested to have an impact on automobile insurance consumption; however, the model was unreliable because it had high multicollinearity problems, which were indicated by having high variance inflation factors (VIF). Thereafter, correlation analysis between automobile insurance and the independent variables were examined in order to eliminate some unrelated variables from the model. Table 4.4 shows the correlation analysis between the dependent variable and the independent variables. X7 and X10 were found to be unrelated to the consumption of automobile insurance in Thailand, at 0.05 level of significance; therefore, they were eliminated. After retesting the model, the VIF showed high multicollinearity. X15 and X20 were having too high VIF; therefore, they were eliminated from the model. Thereafter, further investigation was required. X17 was the problem; it had high correlation with X19 and X3. Therefore, X17 was eliminated from the model. After eliminating X7, X10, X15, X20, and X17, the final result was shown below. (See more detail in Appendix C)

Beta Coef

P-value 0.000

VIF

Table 4.6 showed the result of the analysis of automobile insurance consumption in Thailand, four variables were found to have an impact on automobile insurance in Thailand, namely, Export Price Index (X19), Coincident Index (X3), Employment Index (X13) and Consumer Confidence Index (X14). The regression equation was modeled as follows:

Y3 = - 6758065 + 60049 (Export Price Index) + 60070 (Coincident Index) - 24805 (Employment Index) + 11834 (Consumer Confidence Index)

The model was used to explain about 86.9% of automobile insurance in Thailand, the model was reliable at 0.05 level of significance. The constant value was -6,758,065 indicated that in the case that the four variables were zero or no values, the automobile insurance consumption would be negative. However, this couldnt be the case because all variables involved in the economic activities; therefore, it is impossible that all four variables would be zero. Three variables were positively related to automobile insurance consumption in Thailand, which were Export Price index, Coincident index, and Consumer Confidence index, while one variable was negatively related which was Employment Rate. Export Price index had the highest impact on automobile insurance consumption in Thailand while Coincident index, Consumer Confidence Index, and Employment Index had lower impact respectively.

46 Export Price index had the highest impact on automobile insurance consumption in Thailand because of having the highest beta coefficient. It was positively related to the insurance consumption which could be interpreted that if Export Price index changes by one unit and other variables remain unchanged, automobile insurance consumption in Thailand would directly change by 60,049. As the export price increases, the business tends to be good as the correlation between Export Price index and Coincident index revealed positive relationship (see more detail in Appendix B). Consumers have more willingness to purchase new vehicles and hence, the consumption of automobile insurance would increase as a result. Coincident index was the second impacting variable that quantitatively effects the changes in automobile insurance consumption in Thailand. If the index changes by one unit and other variables remain unchanged, the insurance consumption would directly change by 60,070. As the economy tends to be good, consumers are willing to make new purchases on their vehicles and need to purchase insurance coverage for their automobile, and hence, automobile insurance consumption in Thailand would increase as a result. Consumer Confidence index was the third impacting variable of automobile insurance consumption in Thailand. It was positively related to the insurance consumption. If the variable changes by one unit and other variables remain unchanged, the insurance consumption would directly change by 11,834. As consumers have more confidence in the state of economy, they are willing to make more spending for new vehicles and hence, automobile insurance consumption would increase. The last impacting variable was Employment rate. This was the only variable which had a negative impact on total non-life insurance consumption in Thailand. If the index increases by one unit and the other variables remain unchanged, the insurance consumption would decrease by 24,805. The logic behind the negative impact was the same as for total non-life insurance consumption in Thailand. It was found that if the export business situation index increases, the insurance consumption for automobile would be decreased.

47 4.2.3.3 Marine and Transportation Insurance (Y4) In the stepwise analysis, there were six steps resulted. Step 6 was chosen for further analyzed because it had the highest r-square. It was found that six variables were having an impact on marine and transportation insurance consumption. The model was not reliable because X7 was not significance at 0.05 significance level. In addition, some variables were not related to marine and transportation insurance consumption in Thailand which were: X7, X10 and X11. Therefore, the model was retested without X7, X10 and X11. After eliminating X7, X10 and X11, it was found that X14 was not significance to the model with p-value higher than 0.05. Thereafter, the model was re-run without X14. Therefore, after eliminating X7, X10, X11, and X14, the model was at an acceptable level. (See more detail in Appendix C)

Beta Coef

P-value 0.000

VIF

0.562750 0.315431

0.000 0.000

1.974 1.974

Table 4.7 showed the result of the analysis of marine and transportation insurance. Two variables were concluded to have an impact on marine and transportation insurance in Thailand, namely, Coincidence Index (X3) and Import Price Index (X20). The regression equation was as follows:

The model was used to explain 66.6% of marine and transportation insurance consumption. The standard error of the estimate was 31,819. The constant value was -471,058 indicated that in the case that the two variables were zero or no values, the marine and transportation insurance

48 consumption would be negative. However, this couldnt be the case because all variables involved in the economic activities; therefore, it is impossible that all four variables would be zero. Two variables were found to have positive impact on marine and transportation insurance in Thailand. The first impacting variable was Coincident index. It was positively related to the consumption of marine and transportation insurance. If the variable changes by one unit and the other variables remain unchanged, the insurance consumption would directly change by 6,230. As the economy tends to be good, the economy expenditures would be increased, leading to the increase in the insurance consumption. The second impacting variable was Import Price index. If the variable changes by one unit and the other variables remain unchanged, the insurance consumption would directly change by 1,007. As the import price increases, the economy tends to be good and the consumption of goods and services would increase. 4.2.3.4 Miscellaneous Insurance (Y5) There were four variables suggested by the stepwise analysis. Step 4 was selected for further analysis. It was found that four variables were having an impact on miscellaneous insurance consumption. However, the model was not reliable because X7 were not related to the consumption of miscellaneous insurance, as shown in table 4.4. The model was retested after X7 was removed. Thereafter, the model was not significance with X17 having the highest p-value and the highest VIF value; thereafter, the model was re-run without X17. Therefore, after eliminating X7 and X17, the model was significant at an acceptable level. (See more detail in Appendix C) Table 4.8 showed the result of the analysis of miscellaneous insurance consumption in Thailand. Two variables were found to have an impact on miscellaneous insurance in Thailand, namely, Export Price Index (X19) and Consumer Confidence Index (X14). The regression model was as follow:

Variables Constant X19 X14 Export Price Index Consumer Confidence Index

Beta Coef

P-value 0.000

VIF

0.910818 0.188508

0.000 0.015

1.867 1.867

The model could be used to explain 63.1% of miscellaneous insurance consumption. The standard error of the estimate was 530,545. The constant value was -2,464,641 indicated that in the case the two variables were zero or no values, the miscellaneous insurance consumption would be negative. However, this couldnt be the case because all variables involved in the economic activities; therefore, it is impossible that all four variables would be zero. The two variables were having an impact on miscellaneous insurance consumption in Thailand with a positive relationship. In addition, the beta coefficient suggested that Export Price index had higher impact on miscellaneous insurance consumption in Thailand than that of Consumer Confidence index. Export Price index was the first impacting variable on miscellaneous insurance consumption in Thailand. It was positively related to the consumption of miscellaneous insurance. If the variable changes by one unit and the other variables remain unchanged, the insurance consumption would directly change by 45,685. The second impacting variable was Consumer Confidence index. If the variable changes by one unit and the other variables remain unchanged, the insurance consumption would directly change by 10,739.

4.3 Summary

The summary of variables, which were found to have an impact on non-life insurance consumption in Thailand, is shown in Table 4.9.

Variables X1 X3 X6 X7 Consumer Price Index Coincident Index Reference Inflation Index Leading Inflation Index

Total

Fire

Automobile

Miscellaneous 50

X10 Export Business Situation Index X11 New Export Order Index X12 Inventories Index X13 Employment Index X14 Consumer Confidence Index X15 Producer Price Index X17 Construction Material Price Index X19 Export Price Index X20 Import Price Index

CHAPTER 5

This research aimed to study the impact of macroeconomic factors on non-life insurance consumption in Thailand from 2002 to 2011 by using multiple regression analysis. The result was expected to identify which macroeconomic factors were having an impact on such consumption. In addition, it was expected to be used as an estimation tool in the future. This section is presented in the following sequence: 5.1 Conclusion 5.2 Discussion 5.3 Recommendation

5.1 Conclusion Insurance is deemed significant to a countrys economy due to its contribution to economic growth. As the state of economy around the world has changed rapidly, it was significant to understand how the insurance business was impacted by economic factors. This research, therefore, aimed to find out the potential impact of macroeconomic factors on non-life insurance consumption in Thailand. The result was expected to help non-life insurers be aware of such potential impacts and to be used as a vital tool to predict future insurance consumption. The research was mainly focused on the impact of macroeconomic factors on non-life insurance consumption in Thailand as a whole. Therefore, the dependent variable was total non-life insurance consumption in Thailand from 2002 to 2011. It was collected from the Office of Insurance Commission (OIC). The independent variables, or macroeconomic factors, were represented by macroeconomic indices published by the Bureau of Trade and Economic Indices, Thailand. They were classified into eight main classifications, namely: Consumer

52 Price Index, Business Cycle Index, Inflation Cycle Index, Export Business Situation Index, Consumer Confidence Index, Producer Price Index, Construction Material Price Index, and Export and Import Price Index. These variables were gathered in the form of the actual index, the percentage change from the previous month and six-month smoothed annualized growth rate. The data were collected on a monthly basis from 2002 to 2011 and were analyzed by Multiple Linear Regression (MLR). The independent variables were collected in the total of 20 different variables. Of all twenty variables, thirteen variables were the actual indices, and seven variables were the percentage changes from previous month and six-month smoothed annualized growth rates. Before further analyzing the data using the MLR technique, the correlation coefficient among variables were examined. This process was used to analyze which type of data was the most suitable for the analysis of non-life insurance consumption in Thailand. As there were two types of independent variables collected which were the actual index, and the percentage change from a previous month and six-month smoothed annualized growth rate, the data were considered duplicate. Therefore, this process helped select the type of independent variable which should be included in the analysis, either the actual indices, or the percentage changes from the previous month and the six-month smoothed annualized growth rate would be selected for the MLR. After the correlation among variables was analyzed; it was found that nine out of thirteen actual indices, or 70%, were having a relationship with total non-life insurance consumption in Thailand whereas only one out of seven percentage changes from previous month and six-month smoothed annualized growth rates, or 15%, were having a relationship with total non-life insurance consumption in Thailand. From this information, it was shown that the actual index was more suited to the model because it had better relationships with non-life insurance consumption in Thailand. Therefore, the actual indices were selected for further analysis. Thereafter, the actual indices were used to analyze in the stepwise analysis in order to study the impact on non-life insurance consumption in Thailand and also to construct the estimated model used to predict future consumption. Thirteen actual indices were included in the stepwise analysis, namely, Consumer Price index, Coincident index (from Business Cycle index), Reference Inflation index (from

53 Inflation index), Leading Inflation index (from Inflation index), Export Business Situation index, New Export Order index (from Export Business Situation index), Inventories index (from Export Business Situation index), Employment Rate (from Export Business Situation index), Consumer Confidence index, Producer Price index, Construction Material Price index, Export Price index, and Import Price index. These variables were used to analyze the impact on total non-life insurance consumption in Thailand. Thirteen variables were used to analyze in the stepwise analysis until an acceptable result was obtained. In this study, the alpha was set at 0.05 significance level; however, the alpha to enter and alpha to remove were both set at 0.15 significance level. After the analysis was obtained, the model which had the highest rsquare would be selected for further analysis. This is because it was found that some of the parameters in each model should be rejected the null hypothesis. In order to construct a reliable model, the model would be selected to get in-depth analysis. In the analysis of total non-life insurance consumption in Thailand, eleven steps were obtained from the stepwise analysis. Step 10, which had the highest rsquare, was selected. It contained eight variables. Since, the Variance Inflation Factor (VIF) of some of the variables were higher than 4, the variables in the selected model were re-reviewed the correlation among them. Leading Inflation index, New Export Order index, Import Price index, and Construction Material index were eliminated from the model because there were not related to total non-life insurance consumption in Thailand and also had too high relationship with other variables causing the VIF to be too high. Therefore, it was found that four variables were having an impact on total nonlife insurance consumption in Thailand which were Coincident index (from Business Cycle index), Employment Rate (from Export Business Situation index), Consumer Confidence index, and Export Price index. The model could be used to estimate around 84% of total non-life insurance consumption in Thailand with an estimated standard error of 842,389. Export Price index was the main contributor of total non-life insurance consumption in Thailand. They had an almost perfect positive relationship with each other. If the Export Price index increases which would be resulting in the increase in

54 export values, total non-life insurance consumption in Thailand would largely increase due to higher demand for insurance. The increase in export price would probably result in higher domestic productions for export and hence, increase the overall demand of insurance purchased in Thailand. The second highest contributor of total non-life insurance consumption in Thailand was Consumer Confidence index. They had a weak positive relationship. If Consumer Confidence index increases, total non-life insurance consumption in Thailand would slightly increase. This finding shows that the perspective of consumers toward the state of the nations economy affects the demand for non-life insurance in Thailand. The third highest contributor of total non-life insurance consumption in Thailand was Coincident index. They had a weak positive relationship with each other. If Coincident index increases, total non-life insurance consumption in Thailand would slightly increase. Since Coincident index reflects real business cycles, it shows that total insurance consumption and the business cycle in Thailand change in the same direction. The final contributor of total non-life insurance consumption in Thailand was Employment rate from Export Business Situation index. They had weak negative relationship. If the Employment rate decreases, total non-life insurance consumption would increase. The Employment rate was measured by collecting survey data from export business entrepreneurs. The survey asked those entrepreneurs their opinion on the future export business situation. It is not, therefore, the actual employment ratio in Thailand. In this case, if those entrepreneurs view that the business situation is getting worse, and then they would probably hire lower number of personnel. However, this information implies that the poor economic condition causes the entrepreneurs to purchase more insurance coverage for themselves. In summary, four variables were found to have an impact on total non-life insurance consumption in Thailand, namely, Export Price index, Consumer Confidence index, Coincidence index, and Employment rate. In addition to the analysis above, all thirteen actual indices had also been used to analyze the impact to each type of insurance policies in Thailand separately, i.e.

55 Fire insurance, Automobile insurance, Marine and Transportation insurance, and Miscellaneous insurance, in order to analyze how the variables affect each policy. For Fire insurance consumption, it was found that it was not impacted by the variables in the study as the correlation analysis suggested that no actual indices were related to fire insurance consumption. This finding is in line with the statistics of fire insurance consumption in the past ten years. It was shown that fire insurance consumption in the past ten years was stable; therefore, the economic condition did not affect the consumption. For Automobile insurance consumption, it was found that it was impacted by the identical variables to total non-life insurance consumption which were Coincident index (from Business Cycle index), Employment Rate (from Export Business Situation index), Consumer Confidence index, and Export Price index. The model could be used to estimate around 87% of total non-life insurance consumption in Thailand with an estimated standard error of 467,338. As the statistics showed that automobile insurance consumption had the highest market share in Thailand, about 60% of total non-life insurance consumption in Thailand was from automobile insurance consumption, this finding showed that the variables which impacted automobile insurance consumption would also have an impact on total non-life insurance consumption in Thailand. For Marine and Transportation insurance consumption, it was found that only variables were found to have an impact which were Coincidence index (from Business Cycle index), and Import Price index. The model could be used to estimate approximately 66.6% of marine and transportation insurance consumption in Thailand with an estimated standard error of 31,819. Coincident index was also the common variable with total non-life insurance consumption. However, Import Price index was not effect total non-life insurance consumption. It should be because Import Price index used Cost, Insurance, and Freight (C.I.F.) for the calculation. The insurance costs would be included in the import price. Therefore, when Import Price index drops, the consumption for this insurance would also decrease. For Miscellaneous insurance consumption, it was found that there were two variables having an impact on the consumption, namely, Export Price index, and Consumer Confidence index. Both variables also impacted the consumption of total

56 non-life insurance consumption in Thailand. The model could be used to estimate approximately 63% of miscellaneous insurance consumption with an estimated standard error of 530,545. Since miscellaneous insurance is the insurance coverage for all other types of policies which are not fire, automobile, and marine and transportation insurance, the finding showed that the increasing of the countrys expenditures lead to the increase in the consumption of miscellaneous insurance. In conclusion, some types of non-life insurance consumption were impacted by common macroeconomic variables. First, coincidence index was one of the common impacting variables. It affected automobile insurance consumption and marine and transportation insurance consumption in Thailand. Second, export price index was another common impacting factor. It affected automobile insurance consumption and miscellaneous insurance consumption. Third, consumer confidence index was found to have an impact on automobile insurance consumption and miscellaneous insurance consumption. Regardless, these three common variables were also having an impact on total non-life insurance consumption in Thailand and could be the main contributors to non-life insurance industry.

5.2 Discussion

From the study, it was found that total non-life insurance consumption and automobile insurance consumption had been impacted by common macroeconomic factors which were: Export Price Index (X19), Coincident Index (X3), Consumer Confidence Index (X14), and Employment Rate (X13). In addition, the estimates of the four variables impacted both insurance consumption by more than 80%. Since automobile insurance contributed the highest consumption proportion of all non-life insurance industry, this could be the main cause of such a result. When Export Price Index, Coincident Index, and Consumer Confidence Index have increased, total non-life insurance consumption would also increase. The increasing of these indices indicated a favorable economic performance; the business sectors tend to make more investment; consumers tend to make more spending during such economic status. Therefore, total non-life insurance consumption would increase.

57 On the other hand, when Employment rate has increased, total non-life insurance consumption in Thailand would decrease. From the correlation analysis, it was found that all of the Export Business Situation indices were negatively related to the consumption of total non-life insurance consumption in Thailand as same as of automobile, marine and transportation, and miscellaneous insurance. As the indices were calculated based on the opinion survey of export business entrepreneurs, it was found that as the export business situation tends to be better; those entrepreneurs believe that they would purchase less insurance coverage. However, this result was the opinion of the entrepreneurs, not the result of the actual situation. In addition, it was found that there was no correlation between the Export Business Situation indices and the Coincident index which is the index that reflects the real business cycle in Thailand. Therefore, the view of entrepreneurs suggested that if the employment ratio of export business increases, they tend to purchase less insurance coverage. Additionally, marine and transportation insurance consumption analysis found that it was impacted by Coincidence Index (X3) and Import Price Index (X20) of around 66%. Coincidence Index was also found to be a common impact of total nonlife insurance consumption. As these variables increase, marine and transportation insurance consumption in Thailand would also increase. Moreover, Export Price Index (X19) and Consumer Confidence Index (X14) were found to have an impact on miscellaneous insurance consumption of around 63%; these two variables were also found to have an impact on total non-life insurance consumption and automobile insurance consumption in Thailand. As these variables increased, miscellaneous insurance consumption in Thailand would also increase. Nevertheless, fire insurance was not affected by any macroeconomic factors. Since the consumption of fire insurance during the past decade remained unchanged regardless of economic situation, the result was reliable. This should be caused by the stability of insurance consumption in fire insurance industry. However, further analysis to find out the cause of such a circumstance should be analyzed. From the analysis, four variables were found to have an impact of more than 80% on overall non-life insurance consumption in Thailand, namely: Export Price Index, Coincidence Index, Consumer Confidence Index and Employment Rate. From

58 these four variables, Export Price Index was contributed to the consumption of automobile insurance and miscellaneous insurance; Coincidence Index was contributed to the consumption of automobile insurance and marine and transportation insurance; Consumer Confidence Index was contributed to the consumption of automobile insurance and miscellaneous insurance; Employment rate was only contributed to the consumption of automobile insurance in Thailand. From this information, it was found that three out of four variables were contributed by insurance classifications in Thailand and thus, they impacted on total industry consumption.

5.3 Recommendation

5.3.1 Recommendation from the research From the conclusion, it was recommended that some macroeconomic factors were having an impact on non-life insurance consumption, namely, Coincident index, Consumer Confidence index (from Business Cycle index), Employment rate (from Export Business Situation index), and Export Price index. Some factors may contribute greatly to the consumption while some factors may not. Non-life insurance companies may use this conclusion to their benefits by having a better understanding of how macroeconomic factors impact their business. It was shown in the analysis that these four variables were contributed to over 80% of total non-life insurance consumption in Thailand. Moreover, the model could also be used to predict future consumption in Thailand. In addition, it was found in the analysis that these four independent variables also had an impact on other types of insurance coverage in Thailand. Automobile insurance was greatly contributed by these four variables while marine and transportation insurance consumption, and miscellaneous insurance consumption were contributed by two variables each. Therefore, it can be concluded that variables which contributed to each type of insurance consumption in Thailand would contribute to total non-life insurance consumption in Thailand.

59 5.3.2 Recommendation for further research In this analysis, there are some recommendations for further research. First, additional variables should be collected for analysis. In this study, the indices published by the Bureau of Trade and Economic Indices, were implied as macroeconomic indicators and were used to indicate the state of economy. However, some other variables should also be collected to analyze their potential impact on nonlife insurance consumption. As the selected factors were not having impacts on fire insurance consumption at all, some other factors should be considered for study. The example of variables include interest rates, the amount of land and building transactions, the amount of new housing, the amount of vehicles produced, etc. Second, a longer period should be considered. In this study, 10 year data was selected on a monthly basis. However, a longer period may be able to provide a different suggestion. Due to a limited access to publicly available data, the monthly data was collected for this study. However, it is recommended that collecting data on an annual basis should be better to study such analysis. Annual data should be better for the analysis because there were some variation between months such as the consumption in August may be higher than in September. Therefore, annual data could be better. Moreover, the period should be a minimum of 50 years in order to analyze the potential impact. It should be tested out longer period because it could potentially show an impact in a long term basis. Third, the impact analysis could be compared with other countries. For example, it was concluded that export price index impacted total non-life insurance consumption in Thailand. The export price index should also be used to analyze the potential impact on other countries non-life insurance consumption in order to compare the impact of macroeconomic factors of Thailand to other countries worldwide. Finally, business cycle should be considered and studied in parallel with this analysis. In this study, it had not included business cycle, i.e. peak, trough; the inclusion of such a situation could lead to different results. Even though, in this study, there was a variable called Business Cycle index which was used to represent a periodically actual business cycle on a monthly basis, it is recommended that the analysis should be studied in parallel with the actual business cycle.

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64 12multicollinearity/05multico_vif.html Siripen Suppakarnchanakanti. 2000. Fundamental Statistics for Economist. Retrieved July 5, 2012, from http://libsearch.nida.ac.th/ipac20/ipac.jsp? session=13395066H2S6R.6811&profile=main&uri=full=3100001@!1197 61@!2&ri=3&aspect=basic&menu=search&source=202.28.16.20@!nidad b&ipp=20&staffonly=&term=fundamental+statistics&index=.GW&uinde x=&aspect=basic&menu=search&ri=3 (In Thai) Somdej Udomchai and Jittatat C. 2010. Consumer Price Index. Retrieved July 5, 2012 from http://www.price.moc.go.th/price/cpi/handbook/cpi.pdf (In Thai) ThaiRe Research and Statistic Service. 2009. Non-life Insurance Business Forecast 2001-2010. Insurance Journal. 105 (October): 1216. Retrieved July 5, 2012 from http://www.insure.co.th/images/journal/105.pdf (In Thai) Ubon Shewasuttho and Karnchana Pothong. 2010. Export and Import Price Index. Retrieved July 5, 2012 from http://www.price.moc.go.th/price/ fileuploader/file_int/IPI.pdf (In Thai) Vishit Wattanabunjongkul. 2006. Factor Affecting the Direct Premium of Life Insurance Companies in Thailand. Retrieved 15 November, 2011 from http://202.28.199.4/tdc/browse.php?option=show&browse_type=title&title id=133381&display=list_subject&q=%C7%D4%B7%C2%D2%B9%D4% BE%B9%B8%EC.%20%C8%C8.%C1.%20(%C8%D6%A1%C9%D2%C 8%D2%CA%B5%C3%EC-%A1%D2%C3%CA%CD%B9)%202537 (In Thai) Watson, Collin J. 1993. Statistics for Management and Economics. 5th ed. Englewood Cliffs, N.J.: Prentice Hall. Zweifel, Peter and Eisen, Roland. 2012. Insurance Economics. Berlin: SpringerVerlag Berlin Heidelberg.

APPENDICES

67 Standard Error of the Mean 189,784.00 11,496.00 115,822.00 4,980.00 79,068.00 0.81 0.06 0.45 0.41 0.14 0.24 0.24 0.47 0.10 0.71 0.68 0.40 0.47 1.39 1.68 0.14 1.18 0.16 1.58 1.56

Y1 Y2 Y3 Y4 Y5 X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 X19 X20

Mean 8,157,144.00 636,107.00 4,843,518.00 314,948.00 2,362,571.00 98.30 0.25 110.05 1.85 0.15 2.89 99.90 0.59 0.05 49.61 49.73 45.79 52.04 27.63 108.98 0.46 105.95 0.37 99.17 99.75

Standard Deviation 2,078,979.00 125,929.00 1,268,772.00 54,554.00 866,145.00 8.92 0.60 4.93 4.44 1.50 2.62 2.63 5.11 1.04 7.79 7.45 4.37 5.14 15.20 18.45 1.53 12.94 1.77 17.27 17.09

Minimum Maximum 4,493,655.00 14,196,132.00 (265,443.00) 951,068.00 2,459,314.00 8,258,552.00 192,060.00 451,883.00 786,301.00 5,170,830.00 84.70 113.31 (3.00) 2.10 97.00 119.10 (14.60) 9.00 (9.24) 7.13 (4.30) 11.40 92.00 104.80 (11.50) 16.00 (3.50) 2.90 23.90 69.20 19.80 64.90 32.50 54.30 35.10 60.40 7.80 63.60 80.70 139.30 (6.50) 4.50 79.00 142.40 (7.40) 7.20 72.20 128.40 76.90 132.90

Y2

Y3

Y4

Y5

X1

X2

X3

X4

X5

X6

X7

X8

0.001

0.903

0.713 0.000

0.762 0.000

1.000

0.026 0.775

P-Value 0.000 0.993 0.000 X2 Percentage change from previous month Correlation -0.038 -0.012 -0.016 0.894 0.859

0.026 0.775

1.000

0.087 0.346

0.099 0.282

0.017 0.857

0.422 0.000

0.102 0.270

0.110 0.230

0.709 -0.102

0.757

0.784

0.559 0.000

0.731 0.000

0.087 0.346

1.000

0.024 0.795

0.084 0.362

0.535 0.000

P-Value 0.000 0.266 0.000 0.000 X4 Six-month smoothed annualized growth rate Correlation -0.265

0.099 0.282

0.024 0.795

1.000

0.469 0.000

0.282 0.002

0.735 0.000

0.596 0.000

P-Value 0.003 0.375 0.007 X5 Percentage change from previous month Correlation P-Value -0.010 0.918 0.174 0.058

0.017 0.857

0.084 0.362

0.469 0.000

1.000

0.038 0.679

0.235 0.010

0.272 0.003

Y2

Y3

Y4

Y5

X1

X2

X3

X4

X5

X6

X7

X8

0.193 0.034

0.360 0.000

0.112 0.223

0.223 0.014

0.422 0.000

0.535 0.000

0.282 0.002

0.038 0.679

1.000

0.361 0.000

0.166 0.069

0.051

0.032

0.092

0.102 0.270

0.156 0.088

0.735 0.000

0.235 0.010

0.361 0.000

1.000

0.714 0.000

P-Value 0.749 0.583 0.728 0.315 X8 Six-month smoothed annualized growth rate Correlation -0.101

0.596 0.000

0.272 0.003

0.166 0.069

0.714 0.000

1.000

P-Value 0.274 0.262 0.267 X9 Percentage change from previous month Correlation -0.063

0.141 0.126

0.158 0.085

0.429 0.000

P-Value 0.495 0.045 Export Business Situation Index X10 Total Export Index Correlation P-Value -0.099 0.283

0.089 0.335

0.017 0.850

0.536 0.000

0.307 0.001

0.211 0.021

0.547 0.000

0.465 0.000

Y2

Y3

Y4

Y5

X1

X2

X3

X4

X5

X6

X7

X8

0.023 -0.113 -0.031 -0.170 -0.205 0.803 0.220 0.739 0.064 0.025

0.241 0.008

0.002 0.982

0.632 0.000

0.315 0.000

0.283 0.002

0.647 0.000

0.541 0.000

0.108 -0.245 -0.076 -0.215 -0.287 0.242 0.007 0.407 0.018 0.001

0.561 0.000

0.170 0.063

0.251 0.006

0.604 0.000

0.412 0.000

0.057 -0.258 -0.088 -0.261 -0.337 0.538 0.005 0.337 0.004 0.000

0.698 0.000

0.229 0.012

0.248 0.006

0.701 0.000

0.447 0.000

P-Value 0.004 Consumer Confidence Index X14 Index Correlation P-Value Producer Price Index X15 Index Correlation P-Value 0.884 0.000

-0.555 -0.042 -0.590 -0.438 -0.432 -0.755 -0.069 -0.537 0.000 0.650 0.000 0.000 0.000 0.000 0.452 0.000

0.460 0.000

0.332 0.000

0.038 0.681

0.013 0.892

0.899 0.000

0.733 0.000

0.758 0.000

0.994 0.000

0.027 0.766

0.268 0.003

Y1

Y2

Y3

Y4

Y5

X1

X2

X3

X4

X5

X6

X7

X8

X16 Percentage change from previous month Correlation -0.050 0.054 -0.047 0.611 0.011 -0.053 -0.005 0.904 0.569 0.956 0.718 0.000 0.058 0.527 0.183 0.046 0.139 0.129 0.385 0.000 0.186 0.042 0.224 0.014

P-Value 0.591 0.561 Construction Material Price Index X17 Index Correlation 0.745 -0.061

0.774

0.704 0.000

0.618 0.000

0.894 0.000

0.025 0.787

P-Value 0.000 0.510 0.000 X18 Percentage change from previous month Correlation -0.059

0.190 0.038

0.105 0.253

0.391 0.000

0.271 0.003

0.257 0.005

P-Value 0.520 0.477 Export and Import Price Index X19 Export Price Index Correlation P-Value X20 Import Price Index Correlation P-Value 0.905 0.000 0.003 0.974

0.918 0.000

0.724 0.000

0.782 0.000

0.988 0.000

0.010 0.912

0.201 0.027

0.895 0.000

0.020 0.830

0.905 0.000

0.711 0.000

0.776 0.000

0.986 0.000

0.006 0.948

0.226 0.013

X10

X11

X12

X13

X14

X15

X16

X17

X18

X19

X20

-0.069 -0.146 -0.205 -0.287 -0.337 -0.755 0.455 0.113 0.025 0.001 0.000 0.000

0.988 0.000

0.986 0.000

X2 Percentage change from previous month Correlation P-Value Business Cycle Index X3 Index Correlation P-Value -0.151 0.101 0.017 0.850 0.002 -0.001 -0.039 -0.537 0.982 0.988 0.673 0.000 0.752 0.000 0.058 0.527 0.738 -0.006 0.000 0.947 0.730 0.000 0.702 0.000 0.159 0.083 0.089 0.335 0.241 0.008 0.017 0.851 0.154 -0.069 0.093 0.452 0.027 0.766 0.718 0.000 0.025 0.787 0.536 0.000 0.010 0.912 0.006 0.948

X4 Six-month smoothed annualized growth rate Correlation P-Value 0.141 0.126 0.536 0.000 0.632 0.000 0.561 0.000 0.698 0.000 0.460 -0.287 0.000 0.001 0.183 -0.329 0.046 0.000 0.190 -0.266 -0.274 0.038 0.003 0.002

X5 Percentage change from previous month Correlation P-Value 0.475 0.000 0.307 0.001 0.315 0.000 0.170 0.063 0.229 0.012 0.098 -0.077 0.287 0.404 0.139 -0.098 0.129 0.286 0.105 -0.069 -0.072 0.253 0.451 0.437

X9 Inflation Cycle Index X6 Reference Inflation Index Correlation P-Value X7 Lead Inflation Index Correlation P-Value -0.033 0.717

X10

X11

X12

X13

X14

X15

X16

X17

X18

X19

X20

0.211 0.021

0.283 0.002

0.251 0.006

0.268 0.003

0.385 0.000

0.384 0.000

0.391 0.000

0.201 0.027

0.226 0.013

0.158 0.085

0.547 0.000

0.647 0.000

0.604 0.000

0.701 0.000

0.332 0.000

0.049 0.599

0.271 0.003

0.080 0.386

0.098 0.286

X8 Six-month smoothed annualized growth rate Correlation P-Value 0.429 0.000 0.465 0.000 0.541 0.000 0.412 0.000 0.447 0.000 0.038 -0.040 0.681 0.665 0.224 -0.125 0.014 0.175 0.257 -0.024 -0.011 0.005 0.798 0.906

X9 Percentage change from previous month Correlation P-Value Export Business Situation Index X10 Total Export Index Correlation P-Value 0.244 0.007 1.000 0.915 0.000 0.453 0.000 0.734 0.000 0.252 -0.111 0.005 0.229 0.173 -0.188 0.059 0.039 0.243 -0.104 -0.102 0.008 0.259 0.266 1.000 0.244 0.007 0.289 0.001 0.049 0.595 0.146 -0.027 -0.076 0.111 0.769 0.410 0.332 -0.136 0.000 0.138 0.308 -0.067 -0.067 0.001 0.469 0.465

X9 X11 New Orders Index Correlation P-Value X12 Inventories Index Correlation P-Value X13 Employment Index Correlation P-Value Consumer Confidence Index X14 Index Correlation P-Value Producer Price Index X15 Index Correlation P-Value -0.027 0.769 0.289 0.001

X10

X11

X12

X13

X14

X15

X16

X17

X18

X19

X20

0.915 0.000

1.000

0.525 0.000

0.829 0.000

0.049 0.595

0.453 0.000

0.525 0.000

1.000

0.746 0.000

0.146 0.111

0.734 0.000

0.829 0.000

0.746 0.000

1.000

0.252 0.005

0.334 0.000

0.380 0.000

0.496 0.000

-0.076 -0.111 -0.166 -0.239 -0.288 -0.732 0.410 0.229 0.069 0.008 0.001 0.000

1.000

0.020 0.826

0.991 0.000

0.987 0.000

X9

X10

X11

X12

X13

X14

X15

X16

X17

X18

X19

X20

X16 Percentage change from previous month Correlation 0.332 0.173 0.059 0.313 0.000 0.061 0.506 0.206 -0.005 0.024 0.954 0.020 0.826 1.000 0.037 0.691 0.540 -0.008 -0.017 0.000 0.930 0.857

P-Value 0.000 Construction Material Price Index X17 Index Correlation P-Value

-0.136 -0.188 -0.264 -0.278 -0.388 -0.706 0.138 0.039 0.004 0.002 0.000 0.000

0.901 0.000

0.037 0.691

1.000

0.003 0.973

0.868 0.000

0.875 0.000

X18 Percentage change from previous month Correlation 0.308 0.243 0.008 0.375 0.000 0.141 0.124 0.288 0.001 0.073 -0.055 0.426 0.547 0.540 0.000 0.003 0.973 1.000 -0.056 -0.034 0.546 0.714

P-Value 0.001 Export and Import Price Index X19 Export Price Index Correlation P-Value X20 Import Price Index Correlation Value

-0.067 -0.104 -0.148 -0.240 -0.267 -0.681 0.469 0.259 0.106 0.008 0.003 0.000

1.000

0.992 0.000

-0.067 -0.102 -0.153 -0.236 -0.265 -0.670 0.465 0.266 0.095 0.010 0.003 0.000

0.992 0.000

1.000

1) Stepwise Regression Analysis The result showed 11 steps. The step which had the highest r-square was selected to review which is step 10.

Stepwise Regression: Y versus X1, X3, ...

Alpha-to-Enter: 0.15 Alpha-to-Remove: 0.15

Response is Y1 on 13 predictors, with N = 120 Step Constant X19 T-Value P-Value X15 T-Value P-Value X3 T-Value P-Value X7 T-Value P-Value X14 T-Value P-Value X17 T-Value P-Value S R-Sq R-Sq(adj) Mallows Cp Step Constant X19 T-Value P-Value X15 T-Value P-Value X3 T-Value P-Value X7 T-Value 85692 3.62 0.000 -126766 -3.72 103536 4.02 0.000 -141963 -4.06 118199 4.40 0.000 -89783 -1.95 124392 4.65 0.000 -107029 -2.31 140872 5.83 0.000 -116305 -2.53 888300 81.90 81.74 34.3 7 1252576 131682 14.00 0.000 872195 82.70 82.40 29.7 8 1394498 67695 1.74 0.085 847727 83.79 83.37 22.6 9 -2200884 65230 1.69 0.094 829183 84.63 84.09 17.6 10 -836630 54387 1.41 0.162 813914 85.32 84.67 13.9 1 -2647357 108951 23.10 0.000 2 -2351997 186706 5.53 0.000 -73466 -2.32 0.022 3 -8327848 203072 6.09 0.000 -102335 -3.16 0.002 68142 2.80 0.006 4 -1966877 226174 6.67 0.000 -126084 -3.81 0.000 82370 3.37 0.001 -76373 -2.50 0.014 5 -134279 190822 5.21 0.000 -79649 -2.09 0.039 81451 3.39 0.001 -115321 -3.35 0.001 21883 2.31 0.022 6 856852 163500 4.21 0.000 -36928 -0.84 0.401 89407 3.71 0.000 -123796 -3.61 0.000 23486 2.50 0.014 -28416 -1.93 0.057 804401 85.78 85.03 12.0

11 -1075038

79

P-Value X14 T-Value P-Value X17 T-Value P-Value X20 T-Value P-Value X13 T-Value P-Value X11 T-Value P-Value S R-Sq R-Sq(adj) Mallows Cp 803383 85.69 85.07 10.8 796915 86.05 85.31 9.9 789992 86.41 85.56 8.8 0.000 27414 3.37 0.001 -34718 -2.73 0.007 0.000 27188 3.37 0.001 -43817 -3.20 0.002 67448 1.69 0.094 0.053 27801 3.47 0.001 -52774 -3.63 0.000 69063 1.75 0.084 -42576 -1.73 0.087 0.023 30289 3.78 0.000 -53483 -3.72 0.000 80047 2.03 0.045 -82140 -2.58 0.011 34630 1.93 0.056 780522 86.85 85.90 7.2 0.013 29614 3.68 0.000 -58454 -4.18 0.000 134087 14.25 0.000 -87580 -2.76 0.007 38297 2.15 0.034 783942 86.62 85.78 7.1

2) Regression Analysis for Step 10 The regression analysis of step 10s equation was shown below which includes Coefficient, Standard Error of the coefficient, p-value, and Variance Inflation Factor (VIF). The model was unreliable because X19 and X20 were having too high VIF. In addition, X19, X7, X20, X13, and X11 had insignificance p-value.

Regression Analysis: Y versus X19, X3, X7, X14, X17, X20, X13, X11

The regression equation is Y1 = - 836630 + 54387 X19 + 124392 X3 - 107029 X7 + 30289 X14 - 53483 X17 + 80047 X20 - 82140 X13 + 34630 X11 Predictor Constant X19 X3 X7 X14 X17 X20 X13 X11 S = 780522 Coef -836630 54387 124392 -107029 30289 -53483 80047 -82140 34630 SE Coef 3889422 38616 26746 46269 8017 14365 39496 31799 17920 T -0.22 1.41 4.65 -2.31 3.78 -3.72 2.03 -2.58 1.93 P 0.830 0.162 0.000 0.023 0.000 0.000 0.045 0.011 0.056 VIF 86.858 3.394 2.898 2.902 6.755 88.995 5.215 3.479

R-Sq = 86.9%

R-Sq(adj) = 85.9%

80

Residual Error Total Source X19 X3 X7 X14 X17 X20 X13 X11 DF 1 1 1 1 1 1 1 1 111 119 6.76228E+13 5.14336E+14 6.09214E+11

Unusual Observations Obs 10 23 84 108 120 X19 75 81 106 125 127 Y1 7524257 5315005 10830860 13410632 14196132 Fit 5724157 6856180 9015144 11448027 12020187 SE Fit 176064 235471 276771 171163 296762 Residual 1800100 -1541175 1815716 1962605 2175945 St Resid 2.37R -2.07R 2.49R 2.58R 3.01R

3) Correlation Analysis for Step 10 Correlation among the variables was reviewed. It showed that X7 and X11 were not related to Y1. Therefore, it was eliminated and the model was retested.

X19 X3 X7 X14 X17 X20 X13 X11 Y1 0.905 0.000 0.709 0.000 0.029 0.749 -0.555 0.000 0.745 0.000 0.895 0.000 -0.263 0.004 -0.137 0.135 X19 X3 X7 X14 X17 X20 X13

0.730 0.000 0.080 0.386 -0.681 0.000 0.868 0.000 0.992 0.000 -0.267 0.003 -0.148 0.106 0.156 0.088 -0.537 0.000 0.738 0.000 0.702 0.000 -0.039 0.673 0.002 0.982 0.332 0.000 -0.020 0.825 0.098 0.286 0.701 0.000 0.647 0.000 -0.706 0.000 -0.670 0.000 0.496 0.000 0.334 0.000 0.875 0.000 -0.388 0.000 -0.264 0.004 -0.265 0.003 -0.153 0.095 0.829 0.000

81

Cell Contents: Pearson correlation P-Value

4) Retest of Regression Analysis without X7 and X11 The model was retested without X7 and X11. The result showed that X20 had insignificance p-value and the highest VIF; therefore, it was eliminated and the model was retested.

The regression equation is Y = - 8462006 + 74127 X19 + 117291 X3 + 22453 X14 - 55820 X17 + 55277 X20 - 74181 X13 Predictor Constant X19 X3 X14 X17 X20 X13 S = 799781 Coef -8462006 74127 117291 22453 -55820 55277 -74181 SE Coef 2199001 38876 27205 7620 14630 39408 18799 T -3.85 1.91 4.31 2.95 -3.82 1.40 -3.95 P 0.000 0.059 0.000 0.004 0.000 0.163 0.000 VIF 83.846 3.344 2.497 6.672 84.379 1.736

R-Sq = 85.9%

R-Sq(adj) = 85.2%

Analysis of Variance Source Regression Residual Error Total Source X19 X3 X14 X17 X20 X13 DF 1 1 1 1 1 1 DF 6 113 119 SS 4.42056E+14 7.22804E+13 5.14336E+14 MS 7.36760E+13 6.39649E+11 F 115.18 P 0.000

Unusual Observations Obs 10 60 61 78 83 84 108 120 X19 75 95 96 114 108 106 125 127 Y1 7524257 9822185 9284126 8995252 7768979 10830860 13410632 14196132 Fit 5783992 8234331 7645677 8524303 9482379 9157267 11430186 11586884 SE Fit 179020 144350 115798 336130 259815 243071 174525 250372 Residual 1740265 1587854 1638449 470949 -1713400 1673593 1980446 2609248 St Resid 2.23R 2.02R 2.07R 0.65 X -2.27R 2.20R 2.54R 3.44R

R denotes an observation with a large standardized residual. X denotes an observation whose X value gives it large leverage.

82

5) Retest of Regression Analysis without X20 In this study, it was set in the methodology that the appropriate VIF should be less than 4. The result showed below that X17 had high VIF; therefore, the model was retested without X17.

The regression equation is Y = - 7686350 + 127137 X19 + 102025 X3 + 23337 X14 - 47545 X17 - 69178 X13 Predictor Constant X19 X3 X14 X17 X13 S = 803167 Coef -7686350 127137 102025 23337 -47545 -69178 SE Coef 2137351 9156 25038 7626 13445 18536 T -3.60 13.89 4.07 3.06 -3.54 -3.73 P 0.000 0.000 0.000 0.003 0.001 0.000 VIF 4.612 2.809 2.480 5.587 1.674

R-Sq = 85.7%

R-Sq(adj) = 85.1%

Analysis of Variance Source Regression Residual Error Total Source X19 X3 X14 X17 X13 DF 1 1 1 1 1 DF 5 114 119 SS 4.40798E+14 7.35389E+13 5.14336E+14 MS 8.81595E+13 6.45078E+11 F 136.66 P 0.000

Unusual Observations Obs 10 60 78 79 83 84 108 120 X19 75 95 114 115 108 106 125 127 Y1 7524257 9822185 8995252 8633958 7768979 10830860 13410632 14196132 Fit 5672963 8195541 8524756 8830731 9470763 9205311 11477206 11317428 SE Fit 161250 142276 337553 330929 260783 241664 172000 161254 Residual 1851294 1626644 470496 -196773 -1701784 1625549 1933426 2878704 St Resid 2.35R 2.06R 0.65 X -0.27 X -2.24R 2.12R 2.46R 3.66R

R denotes an observation with a large standardized residual. X denotes an observation whose X value gives it large leverage. Durbin-Watson statistic = 2.22333

83

Row 1 2 3 4 5 Predictors X19 X3 X14 X17 X13 StdCoef 1.05603 0.24185 0.17066 -0.29604 -0.17098

6) Final Result After the model was rerun without X17, it was reliable and could be used to predict Y1, total non-life insurance consumption.

The regression equation is Y = - 8171741 + 107313 X19 + 67141 X3 + 26786 X14 - 46926 X13 Predictor Constant X19 X3 X14 X13 S = 842389 Coef -8171741 107313 67141 26786 -46926 SE Coef 2237098 7593 24137 7933 18287 T -3.65 14.13 2.78 3.38 -2.57 P 0.000 0.000 0.006 0.001 0.012 VIF 2.883 2.373 2.439 1.481

R-Sq = 84.1%

R-Sq(adj) = 83.6%

Analysis of Variance Source Regression Residual Error Total Source X19 X3 X14 X13 DF 1 1 1 1 DF 4 115 119 SS 4.32730E+14 8.16062E+13 5.14336E+14 MS 1.08183E+14 7.09619E+11 F 152.45 P 0.000

Unusual Observations Obs 10 48 60 84 108 120 X19 75 91 95 106 125 127 Y1 7524257 9439869 9822185 10830860 13410632 14196132 Fit 5612765 7749275 8084657 9039287 11207263 11357445 SE Fit 168179 170501 145555 248637 161661 168712 Residual 1911492 1690594 1737528 1791573 2203369 2838687 St Resid 2.32R 2.05R 2.09R 2.23R 2.67R 3.44R

84

Durbin-Watson statistic = 2.00938

Row 1 2 3 4 Predictors X19 X3 X14 X13 StdCoef 0.891359 0.159157 0.195884 -0.115984

1) Stepwise Regression Analysis In step 1, automobile insurance consumption was tested in a stepwise regression analysis in order to find the optimum variables for further analysis. The analysis showed 9 steps in which step 9 had the maximum r-square and hence, it was chosen for further analyze.

Alpha-to-Enter: 0.15 Alpha-to-Remove: 0.15

Response is Y3 on 13 predictors, with N = 120 Step Constant X19 T-Value P-Value X3 T-Value P-Value X15 T-Value P-Value X7 T-Value P-Value X10 T-Value P-Value X20 T-Value P-Value S R-Sq R-Sq(adj) Mallows Cp Step Constant X19 T-Value P-Value X3 T-Value P-Value X15 506150 84.22 84.09 58.5 7 -2984343 108841 4.93 0.000 91990 6.59 0.000 -106133 481051 85.87 85.62 42.3 8 -3449887 87759 3.66 0.000 101954 6.99 0.000 -86731 458114 87.29 86.96 28.5 9 -3050306 78699 3.19 0.002 101268 6.98 0.000 -67936 442060 88.27 87.86 19.7 434817 88.75 88.26 16.4 1 -1843155 67427 25.09 0.000 2 -6162452 57368 15.36 0.000 48314 3.69 0.000 3 -7255356 121100 6.72 0.000 63380 4.82 0.000 -63181 -3.61 0.000 4 -3055983 136352 7.54 0.000 72773 5.58 0.000 -78860 -4.47 0.000 -50420 -3.09 0.002 5 -1411416 140145 7.85 0.000 71620 5.58 0.000 -81343 -4.68 0.000 -73507 -3.84 0.000 13767 2.21 0.029 6 -1219298 105458 4.73 0.000 86445 6.23 0.000 -101513 -5.39 0.000 -90374 -4.54 0.000 15614 2.54 0.012 54211 2.50 0.014 425131 89.34 88.77 11.9

86

T-Value P-Value X7 T-Value P-Value X10 T-Value P-Value X20 T-Value P-Value X13 T-Value P-Value X17 T-Value P-Value X14 T-Value P-Value S R-Sq R-Sq(adj) Mallows Cp 419405 89.72 89.07 9.7 413352 90.10 89.39 7.5 -5.67 0.000 -63744 -2.70 0.008 24406 3.27 0.001 52209 2.44 0.016 -30247 -2.03 0.045 -4.20 0.000 -55126 -2.33 0.022 24987 3.40 0.001 61255 2.84 0.005 -41612 -2.65 0.009 -17513 -2.07 0.040 -2.81 0.006 -63198 -2.62 0.010 25974 3.54 0.001 55546 2.55 0.012 -45641 -2.88 0.005 -18832 -2.23 0.028 7332 1.48 0.141 411143 90.29 89.50 7.3

2) Regression Analysis for Step 9 Nine variables were found to have an impact on automobile insurance consumption. However, from the regression analysis below, it was found that some variables were having too high VIF. Also, some variables including the constant value were having insignificance p-value.

Regression Analysis: Y3 versus X19, X3, X15, X7, X10, X20, X13, X17, X14

The regression equation is Y3 = - 3050306 + 78699 X19 + 101268 X3 - 67936 X15 - 63198 X7 + 25974 X10 + 55546 X20 - 45641 X13 - 18832 X17 + 7332 X14

Coef -3050306 78699 101268 -67936 -63198 25974 55546 -45641 -18832 7332

SE Coef 2017061 24648 14506 24160 24141 7346 21774 15848 8444 4948

T -1.51 3.19 6.98 -2.81 -2.62 3.54 2.55 -2.88 -2.23 1.48

P 0.133 0.002 0.000 0.006 0.010 0.001 0.012 0.005 0.028 0.141

VIF 127.530 3.598 139.886 2.843 2.303 97.479 4.669 8.410 3.983

87

S = 411143 R-Sq = 90.3% R-Sq(adj) = 89.5%

Analysis of Variance Source Regression Residual Error Total Source X19 X3 X15 X7 X10 X20 X13 X17 X14 DF 1 1 1 1 1 1 1 1 1 DF 9 110 119 SS 1.72970E+14 1.85942E+13 1.91564E+14 MS 1.92189E+13 1.69039E+11 F 113.70 P 0.000

Seq SS 1.61334E+14 3.15522E+12 2.73023E+12 1.87181E+12 9.19439E+11 1.13029E+12 7.22390E+11 7.35356E+11 3.71217E+11

Unusual Observations Obs 57 60 84 108 111 120 X19 95 95 106 125 128 127 Y3 3483126 5841214 6381806 7960075 7893778 8258552 Fit 4737240 5029280 5592363 6899711 7004365 7163647 SE Fit 97119 86809 158007 97305 109047 148208 Residual -1254114 811934 789443 1060364 889413 1094905 St Resid -3.14R 2.02R 2.08R 2.65R 2.24R 2.86R

3) Correlation Analysis for Step 9 Correlation analysis was investigated. It was found that X7 and X10 had no relationship with the insurance consumption; therefore, it was eliminated from the model.

Correlations: Y3, X19, X3, X15, X7, X10, X20, X13, X17, X14

X19 X3 X15 X7 Y3 0.918 0.000 0.757 0.000 0.899 0.000 0.032 0.728 X19 X3 X15 X7 X10 X20 X13 X17

0.730 0.000 0.991 0.000 0.080 0.386 0.752 0.000 0.156 0.088 0.049 0.599

88

X10 X20 X13 X17 X14 -0.061 0.505 0.905 0.000 -0.258 0.005 0.774 0.000 -0.590 0.000 -0.104 0.259 0.992 0.000 -0.267 0.003 0.868 0.000 -0.681 0.000 0.017 0.850 0.702 0.000 -0.039 0.673 0.738 0.000 -0.537 0.000 -0.111 0.229 0.987 0.000 -0.288 0.001 0.901 0.000 -0.732 0.000 0.547 0.000 0.098 0.286 0.701 0.000 -0.020 0.825 0.332 0.000 -0.102 0.266 0.734 0.000 -0.188 0.039 0.252 0.005 -0.265 0.003 0.875 0.000 -0.670 0.000 -0.388 0.000 0.496 0.000 -0.706 0.000

4) Regression Analysis without X7 and X10 After the retest, the result showed that X15 had the highest VIF; therefore, it was eliminated and the model was rerun.

Regression Analysis: Y3 versus X19, X3, X15, X20, X13, X17, X14

The regression equation is Y3 = - 7367640 + 80111 X19 + 93146 X3 - 55842 X15 + 40143 X20 - 34996 X13 - 20462 X17 + 3119 X14 Predictor Constant X19 X3 X15 X20 X13 X17 X14 S = 440039 Coef -7367640 80111 93146 -55842 40143 -34996 -20462 3119 SE Coef 1232683 26372 15382 25619 22759 10492 8925 5143 T -5.98 3.04 6.06 -2.18 1.76 -3.34 -2.29 0.61 P 0.000 0.003 0.000 0.031 0.080 0.001 0.024 0.545 VIF 127.453 3.532 137.313 92.973 1.786 8.203 3.757

R-Sq = 88.7%

R-Sq(adj) = 88.0%

Analysis of Variance Source Regression Residual Error Total DF 7 112 119 SS 1.69877E+14 2.16870E+13 1.91564E+14 MS 2.42681E+13 1.93634E+11 F 125.33 P 0.000

Source DF Seq SS X19 1 1.61334E+14 X3 1 3.15522E+12 X15 1 2.73023E+12 X20 1 1.91032E+11 X13 1 1.43273E+12 X17 1 9.62696E+11 X14 1 71244978358 Unusual Observations

89

5) Regression Analysis without X7 After the retest, the result showed that X15 had the highest VIF; therefore, it was eliminated and the model was rerun.

The regression equation is Y3 = - 6853327 + 46487 X19 + 85417 X3 + 25060 X20 - 38827 X13 - 28866 X17 + 9611 X14 Predictor Constant X19 X3 X20 X13 X17 X14 S = 447283 Coef -6853327 46487 85417 25060 -38827 -28866 9611 SE Coef 1229807 21742 15214 22039 10514 8182 4262 T -5.57 2.14 5.61 1.14 -3.69 -3.53 2.26 P 0.000 0.035 0.000 0.258 0.000 0.001 0.026 VIF 83.846 3.344 84.379 1.736 6.672 2.497

R-Sq = 88.2%

R-Sq(adj) = 87.6%

Analysis of Variance Source Regression Residual Error Total Source X19 X3 X20 X13 X17 X14 DF 1 1 1 1 1 1 DF 6 113 119 SS 1.68957E+14 2.26070E+13 1.91564E+14 MS 2.81595E+13 2.00062E+11 F 140.75 P 0.000

Unusual Observations Obs 57 60 78 84 X19 95 95 114 106 Y3 3483126 5841214 5471666 6381806 Fit 4641158 4923071 5194964 5411860 SE Fit 89510 80729 187983 135939 Residual -1158032 918143 276702 969946 St Resid -2.64R 2.09R 0.68 X 2.28R

90

108 111 120 125 128 127 7960075 7893778 8258552 6808596 6877447 6845021 97604 100321 140022 1151479 1016331 1413531 2.64R 2.33R 3.33R

R denotes an observation with a large standardized residual. X denotes an observation whose X value gives it large leverage. Durbin-Watson statistic = 2.21303

6) Regression Analysis without X15 After the retest, it was shown that X17 was having too high VIF. (It was set that the optimum VIF should be less than 4.) Therefore, X17 was eliminated from the analysis.

The regression equation is Y3 = - 6501674 + 70520 X19 + 78496 X3 - 36559 X13 - 25114 X17 + 10012 X14 Predictor Constant X19 X3 X13 X17 X14 S = 447857 Coef -6501674 70520 78496 -36559 -25114 10012 SE Coef 1191816 5106 13962 10336 7497 4252 T -5.46 13.81 5.62 -3.54 -3.35 2.35 P 0.000 0.000 0.000 0.001 0.001 0.020 VIF 4.612 2.809 1.674 5.587 2.480

R-Sq = 88.1%

R-Sq(adj) = 87.5%

Analysis of Variance Source Regression Residual Error Total Source X19 X3 X13 X17 X14 DF 1 1 1 1 1 DF 5 114 119 SS 1.68698E+14 2.28657E+13 1.91564E+14 MS 3.37397E+13 2.00576E+11 F 168.21 P 0.000

Unusual Observations Obs 57 60 78 79 84 108 111 120 X19 95 95 114 115 106 125 128 127 Y3 3483126 5841214 5471666 5088495 6381806 7960075 7893778 8258552 Fit 4585471 4905485 5195169 5394027 5433642 6829914 6854820 6722860 SE Fit 75021 79335 188225 184531 134755 95910 98454 89917 Residual -1102345 935729 276497 -305532 948164 1130161 1038958 1535692 St Resid -2.50R 2.12R 0.68 X -0.75 X 2.22R 2.58R 2.38R 3.50R

91

R denotes an observation with a large standardized residual. X denotes an observation whose X value gives it large leverage. Durbin-Watson statistic = 2.19016

Row 1 2 3 4 5 Predictors X19 X3 X13 X17 X14 StdCoef 0.959804 0.304894 -0.148065 -0.256228 0.119973

7) Final Result After the retest, the model was reliable with 4 variables used to predict Y3.

The regression equation is Y3 = - 6758065 + 60049 X19 + 60070 X3 - 24805 X13 + 11834 X14 Predictor Constant X19 X3 X13 X14 S = 467338 Coef -6758065 60049 60070 -24805 11834 SE Coef 1241091 4212 13391 10145 4401 T -5.45 14.26 4.49 -2.45 2.69 P 0.000 0.000 0.000 0.016 0.008 VIF 2.883 2.373 1.481 2.439

R-Sq = 86.9%

R-Sq(adj) = 86.4%

Analysis of Variance Source Regression Residual Error Total Source X19 X3 X13 X14 DF 1 1 1 1 DF 4 115 119 SS 1.66447E+14 2.51166E+13 1.91564E+14 MS 4.16118E+13 2.18405E+11 F 190.53 P 0.000

92

57 60 80 84 108 111 120 95 95 115 106 125 128 127 3483126 5841214 4921338 6381806 7960075 7893778 8258552 4561299 4846914 5954563 5345945 6687325 6775413 6743998 77921 80750 72453 137938 89686 99714 93597 -1078173 994300 -1033225 1035861 1272750 1118365 1514554 -2.34R 2.16R -2.24R 2.32R 2.77R 2.45R 3.31R

Row 1 2 3 4 Predictors X19 X3 X13 X14 StdCoef 0.817280 0.233323 -0.100462 0.141802

1) Stepwise Regression Analysis Six steps were found from the stepwise regression analysis of Marine and Transportation Insurance Consumption. Step 6 was chosen to further analyze because of having the highest r-square.

Alpha-to-Enter: 0.15 Alpha-to-Remove: 0.15

Response is Y4 on 13 predictors, with N = 120 Step Constant X3 T-Value P-Value X20 T-Value P-Value X14 T-Value P-Value X7 T-Value P-Value X10 T-Value P-Value X11 T-Value P-Value S R-Sq R-Sq(adj) Mallows Cp 33988 61.51 61.19 32.2 31819 66.55 65.98 14.8 31450 67.60 66.77 12.7 31072 68.65 67.56 10.7 30372 70.31 69.00 6.3 1 -640506 8682 13.73 0.000 2 -471058 6230 7.49 0.000 1007 4.20 0.000 3 -532807 6433 7.76 0.000 1264 4.66 0.000 500 1.94 0.055 4 -340800 6810 8.10 0.000 1429 5.08 0.000 839 2.73 0.007 -2596 -1.96 0.053 5 -205326 6701 8.14 0.000 1560 5.58 0.000 887 2.94 0.004 -4524 -3.01 0.003 1102 2.52 0.013 6 -338982 6855 8.48 0.000 1424 5.09 0.000 889 3.01 0.003 -2895 -1.79 0.077 2980 3.36 0.001 -2528 -2.42 0.017 29747 71.77 70.27 2.7

94 Six variables from step 6 were then analyzed in more detail. The result showed below that the model was unreliable because some variables were having insignificance p-value.

The regression equation is Y4 = - 338982 + 6855 X3 + 1424 X20 + 889 X14 - 2895 X7 + 2980 X10 - 2528 X11 Predictor Constant X3 X20 X14 X7 X10 X11 Coef -338982 6855.0 1424.3 889.3 -2895 2979.9 -2528 SE Coef 143790 808.6 279.6 295.2 1620 887.0 1046 T -2.36 8.48 5.09 3.01 -1.79 3.36 -2.42 P 0.020 0.000 0.000 0.003 0.077 0.001 0.017 VIF 2.136 3.070 2.709 2.446 6.414 8.160

S = 29747.0

R-Sq = 71.8%

R-Sq(adj) = 70.3%

Analysis of Variance Source Regression Residual Error Total Source X3 X20 X14 X7 X10 X11 DF 1 1 1 1 1 1 DF 6 113 119 SS 2.54174E+11 99991583927 3.54165E+11 MS 42362305644 884881274 F 47.87 P 0.000

Unusual Observations Obs 29 38 40 82 97 109 115 X3 108 110 112 112 113 116 117 Y4 349118 401497 229594 427531 405529 436207 358059 Fit 286673 314249 289071 356469 338142 367164 416642 SE Fit 5405 8807 7961 9820 5923 6735 9163 Residual 62445 87248 -59477 71062 67387 69043 -58583 St Resid 2.13R 3.07R -2.08R 2.53R 2.31R 2.38R -2.07R

3) Correlation Analysis of Step 6 From below analysis, it was found that X7, X10, and X11 were not related to the insurance consumption; therefore, they were eliminated from the model.

95

X3 X20 X14 X7 X10 X11 Y4 0.784 0.000 0.711 0.000 -0.438 0.000 0.092 0.315 0.061 0.510 -0.031 0.739 X3 X20 X14 X7 X10

0.702 0.000 -0.537 0.000 0.156 0.088 0.017 0.850 0.002 0.982 -0.670 0.000 0.098 0.286 -0.102 0.266 -0.153 0.095 0.332 0.000 0.252 0.005 0.334 0.000 0.547 0.000 0.647 0.000 0.915 0.000

4) Regression Analysis after eliminating X7, X10, and X11 After the model was retested, it was found that X14 was insignificance to the model; therefore, the model was retested.

The regression equation is Y4 = - 532807 + 6433 X3 + 1264 X20 + 500 X14 Predictor Constant X3 X20 X14 S = 31449.5 Coef -532807 6432.6 1263.6 499.6 SE Coef 82195 828.5 271.4 257.5 T -6.48 7.76 4.66 1.94 P 0.000 0.000 0.000 0.055 VIF 2.006 2.589 1.844

R-Sq = 67.6%

R-Sq(adj) = 66.8%

Analysis of Variance Source Regression Residual Error Total Source X3 X20 DF 1 1 DF 3 116 119 SS 2.39433E+11 1.14732E+11 3.54165E+11 MS 79810993609 989072732 F 80.69 P 0.000

96

X14 1 3723996344

Unusual Observations Obs 38 40 82 100 119 X3 110 112 112 114 107 Y4 401497 229594 427531 277444 355073 Fit 310842 309666 335688 357646 329450 SE Fit 6179 5356 4181 4213 10465 Residual 90655 -80072 91843 -80202 25623 St Resid 2.94R -2.58R 2.95R -2.57R 0.86 X

R denotes an observation with a large standardized residual. X denotes an observation whose X value gives it large leverage. Durbin-Watson statistic = 2.48130

5) Final Result After the model was retested, the model was reliable and could be used to predict marine and transportation insurance consumption.

The regression equation is Y4 = - 471058 + 6230 X3 + 1007 X20 Predictor Constant X3 X20 S = 31819.0 Coef -471058 6229.6 1006.9 SE Coef 76675 831.5 239.8 T -6.14 7.49 4.20 P 0.000 0.000 0.000 VIF 1.974 1.974

R-Sq = 66.6%

R-Sq(adj) = 66.0%

Analysis of Variance Source Regression Residual Error Total Source X3 X20 DF 1 1 DF 2 117 119 SS 2.35709E+11 1.18456E+11 3.54165E+11 MS 1.17854E+11 1012448148 F 116.41 P 0.000

Unusual Observations Obs 29 38 40 82 100 118 119 X3 108 110 112 112 114 108 107 Y4 349118 401497 229594 427531 277444 381250 355073 Fit 285092 302340 313918 340413 358353 335576 326333 SE Fit 4143 4408 4945 3438 4246 9472 10463 Residual 64026 99157 -84324 87118 -80909 45674 28740 St Resid 2.03R 3.15R -2.68R 2.75R -2.57R 1.50 X 0.96 X

97

R denotes an observation with a large standardized residual. X denotes an observation whose X value gives it large leverage. Durbin-Watson statistic = 2.42821

Row 1 2 Predictors X3 X20 StdCoef 0.562750 0.315431

1) Stepwise Regression Analysis In the analysis of the insurance consumption, four steps were found from the stepwise regression analysis. Step 4 was found to have the highest r-square and was used to further analysis in detail.

Alpha-to-Enter: 0.15 Alpha-to-Remove: 0.15

Response is Y5 on 13 predictors, with N = 120 Step Constant X19 T-Value P-Value X14 T-Value P-Value X7 T-Value P-Value X17 T-Value P-Value S R-Sq R-Sq(adj) Mallows Cp 541748 61.21 60.88 13.8 530545 63.11 62.48 9.5 517414 65.21 64.31 4.4 1 -1528899 39241 13.64 0.000 2 -2464641 45685 11.87 0.000 10739 2.46 0.015 3 2490148 50598 12.09 0.000 17785 3.54 0.001 -56424 -2.65 0.009 4 3231819 57178 9.66 0.000 15642 3.02 0.003 -56975 -2.69 0.008 -12082 -1.56 0.121 514218 65.94 64.75 4.0

2) Regression Analysis of Step 4 Four variables from Step 4 were further analyzed below.

Regression Analysis: Y5 versus X19, X14, X7, X17

The regression equation is Y5 = 3231819 + 57178 X19 + 15642 X14 - 56975 X7 - 12082 X17 Predictor Constant X19 X14 X7 Coef 3231819 57178 15642 -56975 SE Coef 1973291 5917 5178 21177 T 1.64 9.66 3.02 -2.69 P 0.104 0.000 0.003 0.008 VIF 4.698 2.790 1.399

99

X17 S = 514218 -12082 7724 -1.56 0.121 4.500

R-Sq = 65.9%

R-Sq(adj) = 64.8%

Analysis of Variance Source Regression Residual Error Total Source X19 X14 X7 X17 DF 1 1 1 1 DF 4 115 119 SS 5.88663E+13 3.04083E+13 8.92746E+13 MS 1.47166E+13 2.64420E+11 F 55.66 P 0.000

Unusual Observations Obs 10 22 34 70 78 79 118 120 X19 75 81 85 102 114 115 128 127 Y5 3728546 3043253 2889075 3336764 2497546 2488976 5170830 4863495 Fit 1568261 2018916 1705720 2261739 2500738 2488606 3832353 3634546 SE Fit 96243 132387 90909 72342 197838 206101 130596 104635 Residual 2160285 1024337 1183355 1075025 -3192 370 1338477 1228949 St Resid 4.28R 2.06R 2.34R 2.11R -0.01 X 0.00 X 2.69R 2.44R

R denotes an observation with a large standardized residual. X denotes an observation whose X value gives it large leverage. Durbin-Watson statistic = 2.31942

3) Correlation Analysis of Step 4 From the analysis, X7 was found to have no impact on Y5; therefore, it was eliminated from the model.

X19 Y5 0.782 0.000 -0.432 0.000 0.013 0.891 0.618 0.000 X19 X14 X7

X14 X7 X17

-0.681 0.000 0.080 0.386 0.868 0.000 0.332 0.000 -0.706 0.000 -0.020 0.825

100

P-Value

4) Regression Analysis without X7 After the model was retest, X17 was found to be insignificance. Therefore, it was eliminated and the model was rerun.

The regression equation is Y5 = - 1791095 + 52030 X19 + 8591 X14 - 11737 X17 Predictor Constant X19 X14 X17 S = 527863 Coef -1791095 52030 8591 -11737 SE Coef 655852 5748 4585 7928 T -2.73 9.05 1.87 -1.48 P 0.007 0.000 0.063 0.141 VIF 4.207 2.075 4.498

R-Sq = 63.8%

R-Sq(adj) = 62.9%

Analysis of Variance Source Regression Residual Error Total Source X19 X14 X17 DF 1 1 1 DF 3 116 119 SS 5.69524E+13 3.23222E+13 8.92746E+13 MS 1.89841E+13 2.78640E+11 F 68.13 P 0.000

Unusual Observations Obs 10 22 34 77 78 79 80 84 101 118 120 X19 75 81 85 113 114 115 115 106 120 128 127 Y5 3728546 3043253 2889075 2155457 2497546 2488976 2549971 3526803 2152068 5170830 4863495 Fit 1559815 1920110 1811526 2543117 2569688 2598413 2667941 2465789 3218810 3632060 3543609 SE Fit 98744 130566 84137 179951 201376 207380 182082 78335 86509 110145 101652 Residual 2168731 1123143 1077549 -387660 -72142 -109437 -117970 1061014 -1066742 1538770 1319886 St Resid 4.18R 2.20R 2.07R -0.78 X -0.15 X -0.23 X -0.24 X 2.03R -2.05R 2.98R 2.55R

R denotes an observation with a large standardized residual. X denotes an observation whose X value gives it large leverage. Durbin-Watson statistic = 2.23112

101 5) Final Result After the rerun, the model was found reliable and could be used to predict miscellaneous insurance consumption.

The regression equation is Y5 = - 2464641 + 45685 X19 + 10739 X14 Predictor Constant X19 X14 S = 530545 Coef -2464641 45685 10739 SE Coef 474779 3848 4371 T -5.19 11.87 2.46 P 0.000 0.000 0.015 VIF 1.867 1.867

R-Sq = 63.1%

R-Sq(adj) = 62.5%

Analysis of Variance Source Regression Residual Error Total Source X19 X14 DF 1 1 DF 2 117 119 SS 5.63418E+13 3.29329E+13 8.92746E+13 MS 2.81709E+13 2.81478E+11 F 100.08 P 0.000

Unusual Observations Obs 10 22 84 118 120 X19 75 81 106 128 127 Y5 3728546 3043253 3526803 5170830 4863495 Fit 1533305 1937112 2469197 3629451 3555844 SE Fit 97600 130720 78699 110690 101831 Residual 2195241 1106141 1057606 1541379 1307651 St Resid 4.21R 2.15R 2.02R 2.97R 2.51R

Row 1 2 Predictors X19 X14 StdCoef 0.910818 0.188508

BIOGRAPHY

Name

Porntida Poontirakul

ACADEMIC BACKGROUND

Bachelor Degree of Business Administration (Property and Casualty Insurance), Assumption University, Thailand 2008

PRESENT POSITION

EXPERIENCES

Full Tuition Fees Scholarships Assumption University, Bangkok, 2005-2008 Magna Cum Laude, Honour Award, Assumption University, Bangkok, 2008 Full Scholarship, National Institute of Development Administration, Bangkok, 2010-2012

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