The Evolution and Determinants of Chinese Property Insurance Companies

Journal of Management Science and Engineering 6 (2021) 449e466
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Journal of Management Science and Engineering

journal homepage: www.keaipublishing.com/en/journals/
journal-of-management-science-and-engineering/
The evolution and determinants of Chinese property

insurance companies’ profitability: A DEA-based perspective
Tengyu Zhao a, b, Ruimin Pei a, b, *, Jiaofeng Pan a, b
a
Institutes of Science and Development, Chinese Academy of Sciences, Beijing, 100190, China
b
School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing, 100049, China
a r t i c l e i n f o a b s t r a c t
Article history: The property insurance industry grows fast in China and it is necessary to further inves-
Available online 29 September 2021 tigate the profitability of the Chinese property insurance industry. This study investigates
the evolution and determinants of the profitability of 53 Chinese property insurers during
Keywords: the year 2013e2017. Profitability is measured by profit ratio efficiency by data envelop-
Data envelopment analysis ment analysis (DEA) methodology and a profit ratio change index is applied to compare
Profit ratio change index
the performance of these insurers over different periods. Tobit regression models are used
Chinese insurance industry
to investigate several influencing factors of profitability. The empirical results show the
Tobit regression
importance of proper arrangement of costs and revenues for an insurer and help to better
understand the effect of firm size, age, and product specification on profitability. Some
policy implications and suggestions are also proposed.
© 2022 China Science Publishing & Media Ltd. Publishing Services by Elsevier B.V. on
behalf of KeAi Communications Co. Ltd. This is an open access article under the
CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
1. Introduction
Profitability is one of the most important indicators for insurance firms' performance because it represents an insurer's
ability to invest and grow and the regulators rely on financial characteristics regarding profitability to determine the viability
of the insurer (Greene and Segal, 2004). Profitability is conventionally measured by financial ratios like return on assets (ROA)
and return on equity (ROE) (Greene and Segal, 2004). In recent years, data envelopment analysis (DEA) methodology has been
broadly applied by researchers to evaluate the performance of different types of insurance companies (Cummins and Weiss,
2013; Eling and Luhnen, 2010b; Kaffash et al., 2020). And profitability is also measured by DEA methods in many studies
because of the shortcomings of conventional financial ratios (Sun et al., 2013).
In this DEA-based literature, insurers’ profitability is assessed and analyzed by multiple efficiency indicators, including
cost efficiency, revenue efficiency, and profit efficiency. A group of empirical studies are conducted based on these efficiencies
of the insurers in different countries (Cummins et al., 2010; Cummins and Xie, 2013; Ohene-Asare et al., 2019; Xie, 2010).
However, as far as we are aware, the existing literature has some limitations. The first one is that these profitability efficiencies
depend on the precise information of input and output price, which is not always easy to access. The second one is that few of
the previous literature consider the change in these efficiencies over time. And the third one is that there lack the research on
the profitability of Chinese insurers in the context of DEA-based insurance literature. Though there are a group of studies
focusing on various aspects of the Chinese insurers, such as their performance in different internal operation stages (Ma and
* Corresponding author.
E-mail addresses: zhaotengyu17@mails.ucas.ac.cn (T. Zhao), peiruimin@casisd.cn (R. Pei), jfpan@casisd.cn (J. Pan).
https://doi.org/10.1016/j.jmse.2021.09.005
2096-2320/© 2022 China Science Publishing & Media Ltd. Publishing Services by Elsevier B.V. on behalf of KeAi Communications Co. Ltd. This is an open
access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
T. Zhao, R. Pei and J. Pan Journal of Management Science and Engineering 6 (2021) 449e466
Chen, 2018), the determinants of their performance (Kweh et al., 2014), and their productivity growth (Kao and Hwang, 2014).
There is not too much research measuring the aforementioned three profitability-related efficiencies in the Chinese insurance
industry, which has been experiencing quick development in recent years.1
Thus, to fulfil these gaps, this study conducts empirical research on the property insurance industry in China. Zhao et al.
(2019) measured the profitability by DEA-based profit ratio efficiency and proposed a profit ratio index to measure its
evolution over different periods. Their methods make it feasible to compare the DEA efficiency scores in different periods to
make further decomposition of the change. Thus, this study follows Zhao et al. (2019) to measure the change of the profit-
ability of 53 representative Chinese property insurance companies by a profit ratio change index. Additionally, three hy-
potheses are developed and the effect of an insurance firm's size, age, and product diversification on its profitability are
investigated.
The remainder of this study is organized as follows. Section 2 introduces the previous literature and the development of
hypotheses. Section 3 introduces the methodologies, including the DEA-based profitability measurement and the Tobit
regression model. Section 4 demonstrates the empirical results. Section 5 contains conclusions and discussion.
2. Literature review and theoretical framework
2.1. Literature review
2.1.1. DEA-based performance assessment of insurance firms

In the insurance and financial literature, performance assessment of insurance institutions is an important topic that
attracts great research interest. Among the various techniques, the frontier analysis assesses the performance of an insurer by
comparing it with a frontier constructed by the firms with the best practice. The frontier analysis is considered superior to
traditional financial ratio analysis and has been broadly applied in the insurance sector (Eling and Luhnen, 2010b). As e
indicate, stochastic frontier analysis (SFA) and DEA are the two primary methodologies applied for frontier analysis in the
insurance sector. The former, SFA, is a parametric econometric approach and requests an estimation of production or cost
function (Cummins and Weiss, 2013). And DEA is a non-parametric approach based on mathematical linear programming
which was first introduced by Charnes et al. (1978) and then developed by Banker er al. (1984). DEA has the advantage that it
can assess the performance of a multi-input multi-output production process without presuming parameters for product
function, like the parametric approaches.
During decades of development, there has been a huge growth in the number of studies applying the DEA method in
different sectors (Emrouznejad and Yang, 2018). As indicated by previous review articles, DEA is the most widely applied
frontier methodologies for performance assessment in the insurance sector ( Cummins and Weiss, 2000, 2013; Eling and
Luhnen, 2010b). The DEA-based insurance literature can be divided into two main categories according to the goal of
research (Kaffash et al., 2020) in the following way.
(1) The first category contains studies that aim mainly at benchmarking the performance of insurance firms. One of the
research directions in this category is to exploring new DEA techniques to better assess an insurer's performance, such
as the multi-stage network DEA model. Kao and Hwang (2008) first proposed the two-stage DEA model, which divided
the production process into two stages and decomposed the whole efficiency into two parts. Then, a group of studies
make some improvements to the network DEA model and conduct empirical studies on the non-life insurance com-
panies in Taiwan (Chen et al., 2009; Kao and Hwang, 2014). Besides, scholars apply this methodology to evaluate in-
surers' performance in different sub-processes and conduct empirical studies (Kweh et al., 2014; Tone et al., 2019).
Another popular research direction is conducting comparison studies based on efficiency scores, which focus on the
differences in insurance industry performance between different regions, such as the insurers in Europe (Medved and
Kavci
c, 2015), Africa (Barros and Wanke, 2017), Asia (Shieh et al., 2020), and other different continents (Eling and
Luhnen, 2010a; Huang and Eling, 2013). The change in total productivity over time is also analyzed in the insurance
sector, where the DEA-based Malmquist index (Fare et al., 1992; Fa €re et al., 1994; Malmquist, 1953) is broadly used in
the related literature. For example, Lim et al. (2021) investigated the change of productivity of insurers in Malaysia
during the period 2000e2017 using the Malmquist productivity index. They found a decrease in the total factor
productivity change and attributed this to the catch-up effect. Cummins and Xie (2013) applied the Malmquist index to
examine the productivity change of the property-liability insurance industry in America during 1993e2009. The results
showed that there was a significant improvement in total factor productivity, whose main contributors were pure
technical change and scale efficiency change. Bertoni and Croce (2011) conducted a research on the total factor pro-
ductivity change of European life insurers from the year 1997e2004. They found the best practice innovation played a
significant role in the increase in productivity.
1
Especially, the property insurance industry in China has experienced rapid expansion in scale. The total amount of premium income in the Chinese
property insurance sector has increased from 621.2 billion yuan to 1054.1 billion yuan, according to the data in Yearbook of China's Insurance in year
2013e2017.
450
(2) The second category consists of studies that aim at investigating the influencing factors of the insurers' efficiency
scores. They apply both the non-parametric DEA methods and parametric econometrical methods and normally these
articles have a “two-stage” structure, where DEA efficiency scores are generated in the first stage and are used as
dependent variables for the regression analysis in the second stage. This type of literature covers topics from multiple
perspectives, such as the impact of corporate governance (Nguyen and Worthington, 2020), economies of scope (Biener
et al., 2016), intellectual capital (Zakery and Afrazeh, 2015), and market structure (Camino-Mogro and Bermúdez-
Barrezueta, 2019).
2.1.2. The profitability of insurance firms

Profitability measures a company's ability to make profits under its existing conditions. It is seen as an important measure
of firm performance (Choi and Elyasiani, 2011; Nourani et al., 2020). In previous literature, the profitability of an insurance
firm can be measured by conventional financial ratios and DEA approaches.
The former measurement of profitability relies on conventional financial ratios like ROA and ROE. These indicators have
been applied by some researchers in the previous financial literature (Adams and Jiang, 2016; Eling and Jia, 2019; Greene and
Segal, 2004; Killins, 2020). However, it is also argued by some researchers that these conventional financial ratios can't reflect
different environments in which insurance companies operate and these environments are beyond the manager's control
(Sun et al., 2013).
The latter measurement of profitability applies DEA models to assess the profitability of insurance firms by measuring
their relative efficiency in achieving profits, saving costs, or expanding revenues. Specifically, the values of DEA-based profit
efficiency, cost efficiency, and revenue efficiency will be obtained and compared, where the profit efficiency is of great value
for it can reflect the effects of both cost and revenue efficiencies (Cummins et al., 2010). For example, Xie (2010) measured the
cost efficiency and revenue efficiency of publicly held US property-liability insurers during 1994e2005 and found initial
public offerings had a positive on both of them. They used the cost, revenue, and profit efficiencies of US insurance firms as the
dependent variables in the regression models to investigate the existence of economies of scope. Cummins and Xie (2013)
also used US property-liability insurance firms as examples and found that their cost and revenue efficiencies remained
relatively stable during the observed period from 1993 to 2009. Ohene-Asare et al. (2019) first applied the Cost Malmquist
Productivity Index in the insurance industry to investigate the change in the cost efficiency over time. They found a positive
effect of an insurance-related act on the productivity of the insurance industry in Ghana.
However, several issues need to be addressed in the existing insurance literature. First, the measurement of classic cost
efficiency, revenue efficiency, and profit efficiency all need precise information on the inputs and outputs. Nevertheless,
precise price data is not easy to obtain in real life (Lotfi et al., 2020; Zhao et al., 2019). Second, few studies investigate the
change in the DEA-based profitability of insurance firms (Ohene-Asare et al., 2019). The characteristics of profitability evo-
lution over time will provide valuable information for insurance managers, though the DEA efficiencies in different periods
are not directly comparable. The Malmquist productivity index should be applied to the profitability-related DEA efficiencies.
Third, in terms of the number of studies, existing studies on the DEA-based profitability mainly concerns the insurance in-
dustries in America. The insurance industry in China, which is an important emerging market economy, needs to be further
investigated and explored.
Thus, based on the existing DEA-based insurance literature, it can be summarized that some research work needs to be
done. First, a DEA-based profitability assessment technique without price information should be considered in the insurance
sector. Second, the change in insurers’ profitability over time should be investigated. Third, the inner mechanisms of the
profitability of the insurers in China should be investigated further, for example, the influencing factors of profitability. In the
next section, the theoretic framework of the relationship between firm size and firm performance is discussed.
2.2. Hypotheses development
In previous insurance literature, various influencing factors of insurers' performance have been investigated. For an
insurer, its development stage and development strategy may have an impact on its performance. Specifically, firm age is an
indicator of the firm's development stage, the firm's product diversification represents development strategy, and firm size
reflects both aspects. In this study, the impact of an insurer's size, age, and product diversification on its performance in the
Chinese insurance industry is under examination. Three hypotheses on the relationship between them and a firm's profit-
ability are proposed respectively.
2.2.1. Firm size and firm performance

Firm size is one of the most discussed influencing factors of firm performance in previous firm literature and insurance
literature, though there is no conclusion on it.
On one hand, some scholars believe that firm performance and firm size are positively related. This is mainly explained by
the theory of economies of scale, that a larger size can help a firm to reduce its cost (Karbhari et al., 2018; Luhnen, 2009).
Larger size helps a firm to diversify its risk, gain enough resources to invest in R&D (Nooteboom et al., 2007), and attract
talents (Biener et al., 2017; Cummins, et al., 2000). Some also point that in an emerging economy where laws and regulations
451
are still improving, larger firm sizes are considered more credible and reliable (Yao et al., 2007). However, on the other hand,
some scholars also support a negative effect of firm size on firm performance because a larger size could also lead to
increasing agency problems and coordination costs (Alhassan and Biekpe, 2016; Fama and Jensen, 1983).
In addition to the two mentioned monotonic positive or negative relationships, some research also indicates a quadratic
relationship between insurer's size and performance. For example, a U-shaped insurer size-performance relationship is found
in some studies (Alhassan and Biekpe, 2015; Worthington and Hurley, 2002). This threshold effect of firm size on firm
performance can be described as a two-stage process. In the initial stage of a firm, with insufficient management capacity, an
expansion in size will bring additional costs and thus cast a negative effect on the performance; then at a later stage, as the
firm grows in size and management capabilities improve, economies of scale start to appear when a certain level of size is
reached. Besides, a group of studies have been conducted to test the validity of “Gibrat's law”, namely the independent
relationship between firm growth rate and firm size, and the findings in some of them support the hypothesis (Samuels, 1965;
Serrano Cinca, et al., 2005; Yasuda, 2005).
In this study, we also propose the hypothesis that there exists a U-shaped relationship between firm size and profitability
in the Chinese property insurance sector:
H1. There is a U-shaped relationship between insurance product diversification and insurer profitability.
2.2.2. Product diversification and firm performance

In terms of the relationship between a firm's product diversification and its performance, there are two main hypotheses,
including the conglomeration hypothesis and strategic focus hypothesis.
The conglomeration hypothesis argues that providing more diversified products have a positive impact on firm perfor-
mance, because a firm can: gain an advantage by sharing and reducing costs and reach cost scope economies (Panzar and
Willig, 1981; Teece, 1980); reduce consumers' information search and transaction costs, meet multiple consumer needs,
and reach revenue scope economies by providing ‘one-stop shopping’ (Berger et al., 2000); diversify its risk; pay more
attention to the development of new products and processes.
The strategic focus hypothesis holds that a higher product diversification level will not lead to better firm performance or
scope economies (Berger and Ofek, 1995). Some argue that the expansion of product lines may create serial agency problems
that will increase the cost and harm firm performance (Amihud and Lev, 1981; Jensen, 1986), harm the technical efficiency of
the firms (Savitha et al., 2019), and result in higher insolvency risk (Al-Amri et al., 2021).
In addition, some scholars also find the existence of an inverse U-shaped relationship between product diversification and
firm performance, indicating the benefits of product diversity are gradually outweighed by the additional costs they entail
(Kang et al., 2011).
In previous insurance literature, some scholars believe that the diversified insurance product lines help improve com-
panies’ efficiency (Meador and Ryan 1997) and improve firm performance (Li and Greenwood, 2004; Villalonga, 2004). Thus,
this study also hypothesizes that more diversified products will cast a positive effect on the profitability of Chinese property
insurers:
H2. There is a positive relationship between insurance product diversification and insurer profitability.
2.2.3. Firm age and firm performance

Firm age, namely how long the firm has been in existence, represents the different development stages of the firm. The
relationship between firm age and firm performance has attracted some research interest, though there are different findings.
On one hand, some researchers find older firms tend to have better performance than younger ones. In terms of the
disadvantages of young firms, Stinchcombe (1965) introduced the important concept of ‘’, which attributed the inferior
position of new firms to their lack of rules, familiar social relations, and stable ties to customers. For example, there are many
difficulties for young companies to get loans due to their risk resisting capability (Diamond, 1991). The ‘liability of adoles-
cence’ introduced by Bruderl and Schussler (1990) was an extension of ‘liability of newness’ and indicated the relationship
between firm age and mortality is inverse U-shaped because young firms rely on their initial resource endowments in their
early phase. In terms of the advantages of older firms, the learning-by-doing effect (Arrow, 1962) indicates that older firms
have accumulated more experience and obtained advantages during their operation and competition in the market (Hill and
Kalirajan, 1993; Jovanovic, 1982; Zhang et al., 2018).
On the other hand, some other theories support a decrease in firm performance with firm age. The ‘liability of ageing’
means that older firms may suffer from inertia and thus lack agility and quick response (Coad, 2018). The ‘liability of ageing’
can be further divided into ‘liability of senescence’ and ‘liability of obsolescence’. The ‘liability of senescence’ describes the
inner change of firms due to ageing, such as rigid structures, bureaucratic ossification, organizational inertia, and over-
reliance on successful routines, (Coad, 2018; Love et al., 2016; Ranger-Moore, 1997). The ‘liability of obsolescence’ refers to
the difficulties of older firms in adapting to the changes in the environment and keeping up with changing customer pref-
erences in a rapid revolutionizing industry (Coad, 2018; Le Mens et al., 2014). Moreover, younger companies have state-of-
the-art devices and technology to gain enough revenue (Pilar et al., 2018).
In this study, the property insurance sector of China is under examination and it is an industry experiencing rapid
development. In this particular context, older insurers may find difficulty in timely responding to the environmental changes
452
due to their inflexibility, which in turn may harm their profitability. Thus, we propose the third hypothesis that older property
insurers have weaker profitability in the China context:
H3. There is a negative relationship between insurer age and insurer profitability.
3. Methodology
In this study, the DEA-based measurement of profitability is introduced. Specifically, this study applies the measurement
proposed by Zhao et al. (2019) to evaluate profitability by profit ratio efficiency (PE) through DEA methods. The profit ratio
change index (PI) is also constructed to measure the evolution of profitability, based on profit ratio efficiency and technical
efficiency. Furthermore, PI is decomposed in different ways so that the sources of profitability change can be identified.
3.1. DEA-based profit ratio efficiency
Suppose there are n decision-making units (DMUs) to be evaluated. For DMUj, variable xij stands for its ith (i ¼ 1; …; m)
input and variable yrj stands for its rth (r ¼ 1; ::; s) output. The value-based technology is applied to overcome the lack of
precise price information, which means the inputs and outputs are input spending (cost) and output earnings (revenue). Then
the production possibility set under constant returns to scale (CRS) assumption2 can be denoted as:
8 9
< X X =
n n
P ¼ ðx; yÞxi lj xij ; i ¼ 1; …; m; yr lj yrj ; r ¼ 1; …; s; lj 0 (1)
: ;
j¼1 j¼1
Consider all the DMUs aim at maximizing their profit ratio, namely total revenue divided by total cost. For each specific
DMU under evaluation, it supposes to have a maximum profit ratio as:
8 , 9
< X
s X
m X
n X
n =
u* ðxio ; yro Þ ¼ sup uðxi ; yr Þ ¼ yr xi : xi ¼ lj xij ; yr ¼ lj yrj ; xio xi ; yro yr ; lj 0 (2)
: ;
r¼1 i¼1 j¼1 j¼1
For a given maximum profit ratio, there exists a group of combinations of feasible inputs and outputs and they construct
the profit ratio boundary. Then, the profit ratio efficiency of the evaluated DMU is defined as the ratio of its actual profit ratio
to its maximum profit ratio, i.e., PE ¼ uðxio ; yro Þ=u* ðxio ; yro Þ. Thus, a DMU's profitability could be evaluated by profit ratio
efficiency, because the latter shows to what extent a DMU achieves its possible highest profit ratio.
The value-based input-oriented DEA technical efficiency (TE) (Sahoo et al., 2014) can be obtained through linear pro-
gramming as:
8 9
< X
n X
n =
h* ¼ inf h : aj xij hxio ; aj yrj yro ; aj 0 (3)
: ;
j¼1 j¼1
As proved in Zhao et al. (2019), PE is less than or equal to TE. They then relate the inequality to the wrong mix of actual
inputs and outputs. The input-oriented allocative efficiency (AE) in terms of optimizing profitability is defined as AE ¼ ½uðxio ;
yro Þ =u* ðxio ;yro Þ=h* ¼ PE=TE. When there is no distortion in the mix of inputs and outputs, there exists AE ¼ 1;PE ¼ TE. The
allocative efficiency is also value-based measurement without requirement for acute price information.
3.2. Profit ratio change index and its decompositions
To analyze the change in the profit ratio efficiency in different periods, this study follows Zhao et al. (2019) to construct a
profit ratio change index and further explore the drivers of the change. The situation where there are two inputs and one
output are depicted in Fig. 1. It can be seen that, from period t to period t þ 1, both the positions of value-based technical
frontier and the profit ratio boundary change.
At first, the conventional Malmquist index (MI) can be denoted as
2
As Zhao et al. (2019) indicated,“It had been shown that a Malmquist index might not correctly measure productivity change when variable re-turns to
scale (VRS) was assumed”, to ensure that the Manquist index appropriately reflects changes in productivity, this study adopts the CRS assumption rather
than the variable returns to scale (VRS) assumption.
453
Fig. 1. Illustration of profit ratio change index.
2 31=2
h i1=2 ht xio;tþ1 ; yro;tþ1 htþ1 xio;tþ1 ; yro;tþ1
MI ¼ MI MI t tþ1
¼4 5 (4)
ht xio;t ; yro;t htþ1 xio;t ; yro;t
MI measures the inter-period change of technical efficiency and MI greater (smaller) than unity means the TE increases
(decreases) from period t to period t þ 1.
Then, the profit ratio change index (PI) is constructed as
2 . . 31=2
h i1=2 ut xio;tþ1 ; yro;tþ1 ut* xio;tþ1 ; yro;tþ1 utþ1 xio;tþ1 ; yro;tþ1 uðtþ1Þ* xio;tþ1 ; yro;tþ1
PI ¼ PIt PItþ1 ¼4 . . 5
ut xio;t ; yro;t ut* xio;tþ1 ; yro;tþ1 utþ1 xio;t ; yro;t uðtþ1Þ* xio;t ; yro;t
(5)
PI measures the inter-period change of profit ratio efficiency. PI greater (smaller) than unity means the PE increases
(decreases) from period t to period t þ 1.
Based on MI and PI, the allocation Malmquist productivity index (AMI) is proposed to measure the inter-period change of
allocative efficiency. There exists equation PI ¼ MI AMI, which is consistent with the relationship among PE, TE, and AE. In
other words, AMI explains the change in the differences between profit ratio efficiency and technical efficiency. Besides, AMI
can also be given as AMI ¼ ðAMIt AMItþ1 Þ1=2 . AMI greater (smaller) than unity means the AE increases (decreases) from
period t to period t þ 1. In Fig. 1, AMI can be obtained as AMI ¼ ½½ðOZ=OWÞ=ðON=OMÞ ½ðOV=OTÞ=ðOR=OQÞ1=2 .
To identify the sources of profitability change over time, groups of decomposition of PI are conducted.
For PI, it can be decomposed as
. 2 31=2
utþ1 xio;tþ1 ; yro;tþ1 uðtþ1Þ* xio;tþ1 ; yro;tþ1 uðtþ1Þ* xio;tþ1 ; yro;tþ1 uðtþ1Þ* xio;t ; yro;t
PI ¼ . 4 5 ¼ PEC PTC
ut xio;t ; yro;t ut* xio;t ; yro;t ut* xio;tþ1 ; yro;tþ1 ut* xio;t ; yro;t
(6)
PEC stands for “profit ratio efficiency change”, measuring the change of distance to the profit ratio boundary. PTC means
“change of profit ratio boundary”, measuring the average shift of profit ratio boundary.
For PEC, it is further decomposed as:
h . i.
utþ1 xio;tþ1 ; yro;tþ1 uðtþ1Þ* xio;tþ1 ; yro;tþ1 htþ1 xio;tþ1 ; yro;tþ1 htþ1 xio;tþ1 ; yro;tþ1
PEC ¼ h . i. ¼ AEC TEC (7)
ut xio;t ; yro;t ut* xio;t ; yro;t ht xio;t ; yro;t ht xio;t ; yro;t
AEC stands for “allocative efficiency change”, measuring the distortion measured by allocative efficiency. TEC stands for
“technical efficiency change” (Catch-up), measuring a DMU's distance to the value-based technical frontier.
For PTC, it is further decomposed as
454
2 31=2
uðtþ1Þ* xio;tþ1 ; yro;tþ1 htþ1 xio;tþ1 ; yro;tþ1 uðtþ1Þ* xio;t ; yro;t htþ1 xio;t ; yro;t
PTC ¼ 4 5
ut* xio;tþ1 ; yro;tþ1 ht xio;tþ1 ; yro;tþ1 ut* xio;t ; yro;t ht xio;t ; yro;t
2 31=2
ht xio;tþ1 ; yro;tþ1 ht xio;t ; yro;t
4 5
htþ1 xio;tþ1 ; yro;tþ1 htþ1 xio;t ; yro;t
¼ ATC TC (8)
TC means “frontier shift”, measuring the shift of the technical frontier. ATC means “allocation technical change”, measuring
the extent to which the change of the mix of input and output affects the maximum profitability.
In conclusion, to identify the driving force of profitability, the profit ratio change index is decomposed. The final form PI is
the product of four terms, which can be denoted as:
PI ¼ PEC PTC ¼ ðAEC TECÞ ðATC TCÞ ¼ ðTEC TCÞ ðAEC ATCÞ ¼ MI AMI (9)
3.3. The Tobit regression model
To test the three hypotheses about the determinants of profitability, regression analysis is conducted using profitability as
a dependent variable and impossible influencing factors as independent variables. Considering that profitability is measured
as the DEA-based profit ratio efficiency introduced in section 3.1, the dependent variables of the regression model are
censored and fall in the interval (0,1]. Due to the censored structure of dependent variables, using ordinary least squares (OLS)
may lead to biased and inconsistent results (Kaya Samut and Cafrı, 2016). Thus, it is necessary to apply a censored Tobit
regression model (Sueyoshi et al., 2010; Tobin, 1958) to test the effect of environmental variables on the DEA efficiency scores,
which has become one of the most basic practices in various industries (Hoff, 2007). In previous insurance literature, the Tobit
model has also been used for analyzing the determinants of insurers’ efficiency in different countries and regions around the
world (Grmanov a and Pukala, 2018; Grmanova and Strunz, 2017; Ho and Hsu, 2021; Hu et al., 2009; Reyna et al., 2021; Tone
et al., 2019).
Nevertheless, the Tobit regression method has been criticized for its inference problems and the “SimareWilson”
approach is proposed, which is a truncated regression model with bootstrap approaches (Simar and Wilson, 2007; Le opold
Simar and Wilson, 2011). This “SimareWilson” approach has also been applied in the analysis of factors influencing the
performance of insurance companies in previous literature since it is introduced (Barros et al., 2010; Biener and Eling, 2011;
Huang and Eling, 2013).
In this study, considering the argument of the recent conclusive research by Banker et al. (2019) that the “DEA þ Tobit”
approach performs better than the “SimareWilson” approach, we still choose to apply the Tobit regression methods to
investigate the influencing factors of the DEA-based profit ratio efficiency in the Chinese property insurance industry. The
Tobit model can be expressed as follows (Wu et al., 2018):

bo þ bi xi þ εi ; 0 yi 1
yi ¼ (10)
0; otherwise
The dependent variable yi is the efficiency obtained by DEA models, and xi are the vectors of independent variables. Items
bo and bi represent the intercept and estimated coefficients respectively. The random error term is displayed as εot .
4. Empirical results
In this section, empirical analysis is conducted on a sample of 53 representative Chinese property insurance companies.
First, the DEA-based profit ratio efficiency, allocative efficiency, and technical efficiency scores are calculated. Then, the
change of the profit ratio change index of the insurers over different periods is obtained and some further decompositions of it
are made. At last, the effect of three influencing factors of profit ratio efficiency is tested to explore the determinants of
Chinese property insurers’ profitability.
4.1. Indicators and data
4.1.1. Inputs and outputs indicators

The selection of input and output indicators is vital to frontier analysis based on the DEA methodology. As the value-based
DEA methodology is applied to explore insurers' performance in terms of profitability, the inputs and outputs are input
455
spending and output earnings measured in the monetary unit (Zhao et al., 2019). Hence, input spending and output earnings
should be properly selected according to the real practice of the property insurance industry in China. Specifically, the in-
dicators of total cost and revenue are employed to measure the profit ratio efficiency. To select the proper indicators, the input
and output indicators selected in previous studies on insurers’ performance are displayed in Table 1. Then, the general
definitions of the indicators with the most occurrences are demonstrated in Table 2, according to the studies in Table 1.
Combined with the results in Table 1, we follow Cummins and Weiss (2000) and Luhnen (2009) to classify inputs in-
dicators into three different kinds: labour, business services and materials, and capital. It can be found that many studies in
Table 1 at least use two of the three aforementioned inputs, and labour and capital are the most used (Eling and Jia, 2018; Eling
and Schaper, 2017). Besides, some also use assets as one of the inputs (Tone et al., 2019; Wanke and Barros, 2016).
Taking both the value-based technology and the practice of previous literature into consideration, the inputs selected for
the DEA models should at least cover the cost of labour and capital of an insurance company. As an insurer's operating ex-
penses are all listed in its profit and loss statements, four types of cost are eventually selected as four input indicators for the
DEA model in this study. The first input is the operation and administrative expense, which consists of various expenses
incurred in business operation and management, including employee salary, depreciation, and amortization, etc. The second
input is the tax and surcharges, which includes all the tax costs of a company. The third input is the service charge and
commission fee, which is the expense paid to insurance agents and insurance brokers for their intermediation services. The
fourth input is the compensation expense, which means the money paid to the policyholders suffering from losses. These four
expenses make up the majority of a property insurer's total operating expenses and thus are representative to serve as inputs.
As for the outputs, there are three ways to measure the outputs of insurance companies in previous literature, including
the intermediation approach, user-cost approach, and the value-added approach (Cummins and Weiss, 2000; Eling and
Luhnen, 2010b). The value-added approach indicates that an insurer has three main functions: risk-pooling and risk-
bearing, intermediation, and other financial services. Risk-pooling and risk-bearing function mean that the insurance com-
pany constructs a capital pool by the funds from all the policyholders and reapportion most of the money to those who suffer
from losses. Intermediate function means insurer invests the funds collected from policyholders on the capital market and
uses the investment income to pay for its various expenses. Other financial services function refers to the services provided by
an insurer such as financial planning and counselling. This study applies the broadly used value-added approach to measure
the outputs of insurance companies in China. Moreover, considering the value-based technology, the outputs selected should
also cover most of the revenue an insurer accomplishes by its three main functions.
As a result, two main income of an insurer are selected as two outputs for the DEA models. (1) Earned premium. Earned
premium is employed as the output of the risk-pooling and risk-bearing function. Premiums are widely used in related DEA-
based literature in the insurance sector (Biener et al., 2017; Tone et al., 2019). Earned premiums refer to the expired premium
Table 1
Inputs and outputs used in selected previous DEA-based studies on the insurance industry.
References Inputs Outputs

Tone et al. Management expenses, Fixed assets, Investment Premiums earned, Investment income
(2019) assets, Incurred claims plus additions to reserves
Incurred claims plus additions to reserves
(Intermediates)
Eling and Jia Labor, Equity capital, Debt capital Total invested assets, Smoothed loss
(2018)
Biener et al. Number of employees, Materials and business Total invested assets, Smoothed loss, Net premiums written
(2017) services, Equity capital and surplus
Eling and Labour, Debt capital, Equity capital Smoothed loss, Net premiums written, Total invested assets
Schaper
(2017)
Biener et al. Labour and business services, Debt capital, Equity Benefits/losses incurred, Total investments
(2016) capital
Long Kweh Operating expenses, Debt capital, Equity capital Incurred benefits plus additions to reserves, Investment profits
et al.
(2014)
Lu et al. Labour and business service, Debt capital, Equity Incurred benefits plus additions to reserves, Investment profits
(2014) capital
Huang and Number of employees, Equity capital, Debt capital Net premium written, Total invested assets
Eling
(2013)
Biener and Labour and business service, Debt capital, Equity Non-life claims þ additions to reserves, Life benefits þ additions to reserves,
Eling capital Investments
(2012)
Cummins Administrative labour, Agent labour, Materials and Real invested assets, the present values of real losses incurred for personal short-
et al. business services, Financial equity capital tail lines, personal long-tail lines, commercial short-tail lines, commercial long-tail
(2010) lines
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Table 2
Explaination for several important input and output indicators selected in previous literature.
Types Important indicators General explanation

Input Labor Number of employees
Equity capital The total amount of equity from the balance sheet
Debt capital The total amount of liabilities from the balance sheet
Total invested assets/Total investments The real value of total investments
Output Investment profits/income Profits/income earned from the invested assets
Net premium written/Earned premium The net premium written/earned premium from the balance shit
Incurred loss The losses paid in the current year
Table 3
Description of inputs and outputs.
Types Indicators Definitions

Inputs Compensation expense The money paid to the policyholders suffering from losses
Tax and surcharges The tax cost of a company
Service charge and commission fee The expense paid to insurance agents and insurance brokers for their intermediation services
Operation and administrative Various expenses incurred by the enterprise, including employee salary, depreciation, and amortization,
expense etc
Outputs Earned premium Expired premium payments
Investment income The income obtained from investment activity
payments that could be treated as earned or profit. It is a proper proxy for the output earnings in this study for it “measures
price times output” (Yuengert, 1993). (2) Investment income. Investment income is employed as the output of the inter-
mediation function. An insurance company uses the premiums paid by policyholders for financial investments and “in-
vestment income” measures the income obtained from the investment activity. This term is also used in previous literature
(Long Kweh et al., 2014; Lu et al., 2014). The revenue from the financial services function is not included in this study. This
function's scale is much smaller than the other two functions and is highly correlated with them (Huang and Eling, 2013).
In conclusion, four inputs and two outputs are selected for the DEA-based evaluation of profitability. They are all in
monetary form and obtained from profit and loss statements in the insurance company's annual information disclosure
reports. A brief description of these six indicators is listed in Table 3.
4.1.2. Data set

In this study, 53 sample Chinese property insurance companies are selected. The data of the six indicators during the year
2013e2017 is collected from the profit and loss statements in each company's annual information disclosure reports.3 The
descriptive statistics for the input and output indicators are listed in Appendix A.
4.2. Profitability evaluation of the Chinese property insurance industry
4.2.1. Results of DEA efficiencies

Applying the DEA-based methods introduced in section 3.1, profit ratio efficiency (PE), technical efficiency (TE), and
allocative efficiency (AE) of each insurance company in the sample can be calculated. The detailed efficiency scores of PE, TE,
AE, and the average and standard deviation of them in each year from 2013 to 2017 are all listed in Appendix B.
Based on the efficiency scores of PE, TE, and AE during the five years, two main findings can be obtained. First, more DMUs
were having a relatively good performance in the years 2013 and 2014 than in the year 2015e2017. The DEA efficiency
measures the relative distance of each DMU to the best practice frontier, which is made of efficient DMUs with efficiency
equals to one. The number of profit ratio efficient DMUs (PE ¼ 1) in the years 2013 and 2014 is higher than the year 2015e
2017.4 Besides, the difference in allocative efficiency between DMUs was increasing, which was shown by the increasing
standard deviation of allocative efficiency since the year 2014 in Table B in Appendix B. This means that there was a growing
difference between these DMUs’ ability to properly arrange their inputs and outputs.
3
According to the website of Insurance Association of China (http://icid.iachina.cn/?columnid_url¼201510010001#), after excluding the insurers newly
established and merged, there are 59 property insurance companies that have annual information disclosure reports for each year during 2013e2017. Then,
6 of the 59 companies are excluded due to problematic data. Thus, there are 53 companies finally applied as samples for the empirical analysis. These 53
companies make 98% of total earned premiums in year 2017, which indicates that they are sufficiently representative samples of Chinese property insurance
industry.
4
The numbers of efficient DMUs in year 2013e2017 are 14, 10, 4, 5, 8 respectively, according to Table B in Appendix B.
457
Fig. 2. Changes in PI, MI, and AMI.
4.2.2. Results of DEA-based indexes

To compare the relative efficiency scores in different periods, the profit ratio index and other indexes proposed in section
3.2 are also calculated based on the efficiency scores. The intertemporal performance evolution could thus be measured by
the value of these indexes.5 The following analysis consists of two perspectives: the relationships among different groups of
indexes and the distribution and combination of example companies in terms of their performance.
As shown in Fig. 2, PI and MI were higher than one from the year 2013e2017, and AMI was smaller than one during the
year 2014e2017. This shows that both profit ratio efficiency and technical efficiency were keeping progressing, but the
allocative efficiency maintained a worsening trend in most periods. Thus, these results indicate that the progress of profit
ratio efficiency was mainly contributed by the progress in technical efficiency. The progress in technical efficiency shows that
these insurance companies could generate more revenue from existing operating expenses. However, the AMI was smaller
than one during the year 2014e2017, indicating deteriorating allocative efficiency. In other words, the allocation of different
input spending and output earnings prevented the insurers from achieving the highest profitability in these years and this
negative effect had been strengthening.
As for the technical efficiency, its progress is contributed by both the technical change and the technical efficiency change,
though the former played a more stable role. As shown in Fig. 3, both TEC and TC were higher than one during most of the
period 2013e2017, with only one exception (TEC of period 2014e2015). The progress in TEC shows the contribution of in-
dividual insurer's management capabilities of utilizing existing inputs, such as all kinds of operating expenses. And the stable
improvement of TC shows the great development of the whole insurance industry in China, which caused the shift of the
value-based frontier.
The change of allocated efficiency is measured by the index AMI, which was smaller than one during the period
2014e2017 (as shown in Fig. 4) and indicated the negative impact of a wrong mix of inputs and outputs on the profitability
had been increasing. Indexes AEC and ATC are the two components of AMI and played different roles in its changes in different
periods. Specifically, the deteriorating AMI was mainly caused by the distortion of the wrong mix of input spending and out
earnings during the period 2014e2016. While the AMI smaller than one during the period 2016e2017 was mainly caused by
the decreasing effect of the mix of input and output on the maximum profitability.
Then, to further explore the inner characteristics of the performance of sample companies, various recombination of the
index was conducted in terms of PI, MI, and AMI. The distribution of the sample companies is listed in Table 4, including the
number and percentage of different groups.
The insurance companies in group A (MI > 1) experienced progress in technical efficiency. The number of them was always
more than 30 in all periods, showing the wide range of companies achieving improvement in technical productivity from the
year 2013e2017. The proportion of group A increased to 96% in the period 2016e2017, namely, there were only two DMUs not
achieving higher technical efficiency scores.
The insurance companies in group B (AMI > 1) had improvements in terms of allocative efficiency. The number of these
DMUs was less than half of all sample companies except in the period 2016e2017, showing many companies need to improve
5
An index value greater (smaller) than one indicates a corresponding progress (regress).
458
Fig. 3. Changes in MI, TEC, and TC.
Fig. 4. Changes in AMI, AEC, and ATC.
their allocative efficiency. Specifically, there were only 7 companies in this group in the period 2015e2016, indicating more
than 80% of the sample companies perform worse in the arrangement of input spending and output earnings.
The insurance companies in group C (PI > 1) had better performance in achieving higher profitability. The total number of
them was close to companies with MI higher than one. This shows that MI was the main driver of PI for the insurance
companies in China during the year 2013e2017 because it was huge enough to offset most of the negative effects brought by
the wrong mix of inputs and outputs (AMI < 1).
Groups D consisted of companies with AMI higher than one while MI smaller than one. The size of this group was small
and it decreased to zero in the period 2016e2017. This shows few companies are being able to perform better in terms of
allocative efficiency when there is a regress in technical productivity. As a comparison, the companies in group E (MI > 1;
AMI < 1) were on the contrary situation to those in group D. This combination of performance often occurred among the
sample companies during the observed period. The size of group E was stable, accounting for more than 40% of the total
samples from the year 2013e2017. The difference between group D and group E can also be explained by the dominating
effect of MI on PI.
Group F and Group G contained the companies whose allocative efficiency and technical efficiency changing in the same
direction (Group F:MI < 1;AMI < 1; Group G:MI > 1;AMI > 1). Both the size of group F and group G showed a decreasing trend
Table 4
Recombination of all DMUs from the year 2013e2017.
Group name A B C D E F G
(Grouping criteria) (MI > 1) (AMI>1) (PI > 1) (MI < 1, AMI>1) (MI > 1, AMI<1) (MI < 1, AMI<1) (MI > 1, AMI>1)
2013e2014 36(67.9%) 24(45.3%) 36(67.9%) 11(20.8%) 23(43.4%) 6(11.3%) 13(24.5%)
2014e2015 31(58.5%) 20(37.7%) 29(54.7%) 11(20.8%) 22(41.5%) 11(20.8%) 9(17.0%)
2015e2016 45(84.9%) 7(13.2%) 35(66.0%) 4(7.5%) 42(79.2%) 4(7.5%) 3(5.7%)
2016e2017 51(96.2%) 29(54.7%) 49(92.5%) 0(0.0%) 22(41.5%) 2(3.8%) 29(54.7%)
459
during the year 2013e2016. However, in the period 2016e2017, the companies in group G increased to more than half of the
total samples. This indicates more companies were making an effort to improve their technical efficiency and allocative
efficiency to finally achieve higher profitability.
4.3. Determinants of profitability of the Chinese property insurance industry
4.3.1. Variables and data set

The regression model used to test hypotheses H1, H2, H3 can be displayed as
PEot ¼ bo þ b1 Assetot þ b2 ðAssetot Assetot Þ þ b3 Productot þ b4 Ageot þ εot (11)
where coefficients o and t stand for the insurance company and specific year observed respectively.
Then, proper variables should be selected for the regression model. At first, for hypothesis H1, the effect of firm size on
profitability is considered. Total sales, assets, and the number of employees are all widely used as proxies for firm size. Given
that total sales lack instability and the total number of employees is changing along the life cycle of the business (Zhang et al.,
2018), the total asset is applied to proxy company size. The natural logarithm of the total asset (denoted as Asset) and the
quadratic term of it (denoted as Asset Asset) are adopted to test the hypothesized U-shaped relationship between firm size
and profit ratio efficiency. The required data of firm size is obtained from each firm's annual information disclosure reports.
Secondly, hypothesis H2 examines the effect of product diversification. Product diversification (denoted as Product) is
calculated as one minus the sum of the squares of the premium income share of each product of the company, representing
the opposite of product diversification. The measurement of product diversification borrows the concept of the Herfindahl
Hirschman Index (HHI), which is widely used for measuring industry concentration. The data for the calculation of product
focus is collected from “Business Statistics of Each Property Insurance Company” in the Yearbook of China's Insurance,
recording the premium income of each insurance product of each property insurance company.6
Thirdly, hypothesis H3 is about the influence of firm age. Firm age (denoted as Age) stands for the period from each firm's
establishment to the year observed. The data of firm age is collected from each firm's annual information disclosure reports.
Besides, due to the lack of continuous data, two DMUs are excluded from the regression analysis. Thus, the panel data of
the 51 property insurance companies in China during the year 2013e2017 is available for the Tobit regression analysis. The
description of the independent variables for the regression analysis is listed in Table 5.
4.3.2. Results of Tobit regression analysis

The results of the Tobit regression analysis are displayed in Table 6 and several findings can be obtained.
(1) Firm size has a U-shaped relationship with profitability. It is shown that the coefficient of the squared term is positive.
Both variables Asset and Asset Asset have a significant effect on the profit ratio efficiency at the same time. This
further indicates there exists a threshold effect of size. As the insurance company expands, its profitability may
decrease at an early stage and then increases at a later stage. As explained by Alhassan and Biekpe (2015), when an
insure grows, it may meet difficulties in monitoring and control until it starts to have the ability to properly arrange its
resources in the system. Thus, to keep a reasonable expansion of firm size is supposed to be a viable strategy. Thus,
there might be a tough time for the medium-sized insurers and they should develop their core competence internally
to obtain better profitability (Fernandez et al., 2019).
(2) Product diversification has a positive effect on profitability. The coefficient of the degree of product diversification is
positive and the relationship is significant. This positive nexus encourages property insurers in China to expand their
product lines and provide more diversified products and businesses to gain more advantages in the market
competition.
(3) Younger insurance companies perform better than older ones in terms of profitability. The regression results show that
firm age significantly negatively affects the profit ratio efficiency.7 This finding indicates the advantage of younger
insurers in China, which is consistent with the characteristics of an emerging market economy.
5. Conclusions and discussion
This paper conducts empirical research on the property insurance companies in China to explore the change and the
influencing factors of their profitability. The profitability is measured as profit ratio efficiency based on DEA methods. And a
6
There are 13 different types of insurance products, namely corporate property insurance, family property insurance, motor vehicle insurance, liability
insurance, project insurance, cargo transportation insurance, ship insurance, credit Insurance, guarantee insurance, special risk insurance, agricultural
insurance, short-term health insurance, accident insurance and other insurance.
7
According to the size-age scatter plot of the sample insurance companies in each year during 2013e2017, there is no significant correlation between the
two. Thus, the size of the sample companies does not necessarily increase over time.
460
Table 5
Description of independent variables.
Variables Definition Data source

Asset Natural logarithm of each company's total asset. Annual information disclosure
reports
Asset Asset Square of the natural logarithm of each company's total asset. Annual information disclosure
reports
Product Product diversification equals one minus the sum of the squares of the premium income share of each Yearbook of China's Insurance
product.
Age Timespan from each observer's year of establishment to the year observed Annual information disclosure
reports
profit ratio change index is constructed and decomposed to study the change of profitability. The empirical results show that
the observed insurers have witnessed continuous progress in their profitability during the year 2013e2017, which was mainly
due to the improvement in technical efficiency. Some wrong mix of inputs and outputs existes and leads that to the failure of
some companies to not achieve the maximum profit ratio, indicating allocative efficiency plays an important role in insurance
companies' profitability. Besides, a Tobit regression analysis is also conducted to further study the effected of firm size, firm
age, and product diversification on Chinese property insurers’ profitability. The regression results show that firm size has a U-
shaped relationship with profitability, product diversification has a positive effect on profitability and younger insurance
companies perform better than older ones in terms of profitability.
Based on the efficiency scores, constructed indexes, and regression results, several policy implications are proposed on
how to perform better in terms of profitability for the property insurance companies in China. First, insurance companies
should properly arrange their expenditure structure and different types of business. The empirical results in this paper show
that the wrong mix of input spending and output earnings will lead to failure in achieving the maximum profit ratio. Hence,
on one hand, the expenditure structure of an insurance company should be optimized. On the other hand, different types of
business should be considered rather than relying too much on the risk-pooling and risk-bearing function. Second, insurance
companies should develop diversified products to improve their profitability. In the regression analysis in this study, the
results show that producing more diversified products helps an insurance company to gain a higher profit ratio. Thus, it is
necessary to make more efforts to develop various insurance products to meet market needs and improve profitability. Third,
medium-sized insurance companies should keep expanding and accumulating. As the regression results find the U-shaped
relationship between firm size and profitability, the inferior position of medium-sized insurance companies is indicated.
Thus, a medium-sized insurance company could keep expanding and accumulating experience and resources until its
profitability increase with its size.
The contribution of this study can be summarized as threefold. First, within the scope of the literature we know, we are the
first to use the DEA-based profit ratio change index to measure the profitability of Chinese property insurance companies and
decompose the changes. This helps in better understand the performance of Chinese property insurance companies and fills
the research gap. Second, this study helps the insurer to understand the relative position of its profitability in the industry, to
clarify the source of profitability changes and the influencing factors of profitability, and to formulate targeted strategies in
turn. Third, it is helpful for the government to get a better understanding of the development of the industry and formulate
relevant policies.
There are also some future research directions for this study. First, all the discussion is now under constant return to scale
assumption to assure the feasibility of the profit ratio index. It would be interesting to extend this index to the variable returns
to scale assumption. Second, the samples in this study only include property insurance companies in China. A cross-country
comparative study on the profitability of insurance firms would help us to further understand the characteristics of China as
an emerging economy. Third, due to the availability of data, only three influencing factors of profitability are discussed in this
study. More influencing factors would provide more information on the inner mechanism of the operation of Chinese
property insurers.
Table 6
Results of each regression model.
Dependent Variables Result (1) Result (2) Result (3) Result (4)
Coef. p>|t| Coef. p>|t| Coef. p>|t| Coef. p>|t|

Asset 0.017 0.147 0.521** 0.027 0.468** 0.036 0.479** 0.042
Asset Asset / / 0.011** 0.031 0.010** 0.039 0.011** 0.040
Product / / / / 0.217** 0.021 0.237** 0.017
Age / / / / / / 0.011** 0.020
Intercept 1.007 0.000 6.771 0.012 5.993 0.020 6.052 0.026
Note. *** The coefficient is significant at the 0.01 level. ** The coefficient is significant at the 0.05 level. * The coefficient is significant at the 0.1 level.
461
Declaration of conflict interest
The authors declare no conflict of interest.
Acknowledgements
We would like to acknowledge the support of the National Natural Science Foundation of China (NO. 71904185) and the
Institutes of Science and Development, Chinese Academy of Sciences (NO. Y9X1661Q01).
Appendix A. Descriptive statistics for input and output indicators.
Table A
Descriptive statistics for input and output indicators during 2013e2017.
Year Statistics Earned premium Investment Compensation Tax and Service charge and Operation and
(100 million income (100 expense (100 surcharges (100 commission fee (100 administrative expense
yuan) million yuan) million yuan) million yuan) million yuan) (100 million yuan)
2013 Max 182473.39 10598.48 114948.53 11065.86 19011.13 25926.36

Min 22.22 1.61 1.36 2.08 2.73 9.41
Mean 9687.88 562.82 5765.74 615.38 1090.55 1752.06
SD 28834.35 1663.84 17827.06 1822.74 3167.16 4268.66
Median 1571.84 78.35 954.12 57.45 122.15 444.85
2014 Max 207224.66 13350.54 123661.74 12223.84 22910.06 31472.84
Min 19.48 1.95 2.43 1.95 3.24 11.04
Mean 11149.66 751.89 6348.06 706.99 1373.12 1978.69
SD 32942.49 2087.40 19319.36 2065.93 3915.32 4970.98
Median 1965.60 101.98 1080.95 59.70 196.38 457.25
2015 Max 244217.64 20784.39 142574.97 13682.48 31523.40 37317.40
Min 22.07 1.34 4.66 1.66 2.97 7.77
Mean 13217.42 1387.05 7302.45 819.98 1796.36 2443.55
SD 39191.22 3527.16 22194.25 2339.87 5248.45 6179.66
Median 2195.88 235.68 1168.41 74.13 238.40 510.17
2016 Max 256145.09 17886.33 153300.75 6290.06 44130.18 38413.02
Min 17.41 1.45 15.50 0.58 2.60 10.06
Mean 14088.26 1189.45 7885.22 362.61 2377.69 2813.82
SD 41217.32 3535.57 23838.47 1039.23 7065.63 7028.07
Median 2404.68 111.96 1307.78 34.03 362.43 551.96
2017 Max 288923.69 19772.71 168643.77 2110.04 55713.70 42403.71
Min 9.46 0.29 2.60 0.19 2.29 1.66
Mean 15821.60 1224.75 8568.63 141.57 2959.09 2855.52
SD 46995.56 3473.33 26053.50 421.21 9225.53 7343.93
Median 2666.46 145.21 1428.21 12.12 429.59 581.45
Appendix B. Calculation results of efficiency scores.
Table B
PE, AE, and TE of each DMU during the year 2013e2017.
Year 2013 2014 2015 2016 2017
DMU PE TE AE PE TE AE PE TE AE PE TE AE PE TE AE
1 0.731 0.769 0.950 0.744 0.780 0.955 0.518 0.610 0.849 0.444 0.595 0.746 0.623 0.823 0.757
2 0.749 0.812 0.923 0.740 0.803 0.921 0.511 0.631 0.810 0.425 0.593 0.717 0.553 0.640 0.864
3 0.705 0.755 0.934 0.700 0.746 0.938 0.505 0.599 0.844 0.398 0.538 0.740 0.567 0.760 0.747
4 0.742 0.787 0.943 0.769 0.829 0.928 0.533 0.643 0.829 0.450 0.636 0.708 0.651 0.792 0.822
5 0.703 0.752 0.935 0.727 0.770 0.944 0.443 0.516 0.858 0.403 0.599 0.673 0.531 0.723 0.734
6 0.689 0.764 0.901 0.705 0.768 0.918 0.449 0.529 0.849 0.405 0.660 0.614 0.503 0.776 0.647
7 0.713 0.776 0.918 0.713 0.779 0.915 0.474 0.587 0.806 0.413 0.622 0.664 0.536 0.716 0.749
8 0.695 0.743 0.935 0.712 0.749 0.951 0.495 0.577 0.858 0.435 0.614 0.709 0.643 0.777 0.828
9 0.699 0.744 0.939 0.714 0.728 0.982 0.453 0.515 0.879 0.431 0.652 0.661 0.678 0.862 0.787
10 0.713 0.785 0.908 0.703 0.767 0.916 0.468 0.571 0.821 0.437 0.680 0.642 0.606 0.760 0.797
11 0.677 0.721 0.939 0.754 0.796 0.947 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
12 0.681 0.735 0.927 0.705 0.732 0.963 0.456 0.545 0.838 0.429 0.598 0.717 0.616 0.753 0.817
13 0.625 0.696 0.897 0.662 0.726 0.912 0.545 0.665 0.820 0.349 0.546 0.640 0.537 0.729 0.738
14 1.000 1.000 1.000 1.000 1.000 1.000 0.502 0.599 0.838 0.737 0.992 0.743 1.000 1.000 1.000
462
Table B (continued )
Year 2013 2014 2015 2016 2017
DMU PE TE AE PE TE AE PE TE AE PE TE AE PE TE AE
15 0.786 0.860 0.914 0.853 0.930 0.917 0.520 0.648 0.803 0.410 0.525 0.781 0.627 0.839 0.748
16 0.659 0.721 0.914 0.666 0.731 0.911 0.360 0.409 0.879 0.393 0.620 0.635 0.634 0.840 0.755
17 0.685 0.734 0.932 0.638 0.686 0.930 0.394 0.458 0.860 0.348 0.578 0.602 0.516 0.742 0.695
18 0.515 0.671 0.768 0.542 0.659 0.822 0.337 0.468 0.721 0.371 0.617 0.602 0.588 0.803 0.732
19 0.622 0.688 0.904 0.687 0.729 0.942 0.409 0.491 0.834 0.379 0.613 0.619 0.495 0.681 0.726
20 0.669 0.736 0.910 0.664 0.717 0.926 0.419 0.479 0.875 0.383 0.603 0.635 0.434 0.674 0.644
21 0.667 0.802 0.832 0.676 0.840 0.805 1.000 1.000 1.000 0.423 0.624 0.679 0.512 0.706 0.726
22 0.760 0.822 0.925 0.730 0.811 0.901 0.518 0.632 0.819 0.406 0.543 0.749 0.529 0.722 0.732
23 0.736 0.809 0.910 0.702 0.757 0.927 0.443 0.509 0.871 0.423 0.659 0.642 0.583 0.778 0.750
24 0.758 0.834 0.908 0.694 0.787 0.881 0.403 0.505 0.798 0.378 0.639 0.591 0.506 0.693 0.731
25 0.716 0.830 0.862 0.765 0.926 0.826 0.424 0.557 0.762 0.429 0.527 0.814 0.516 0.699 0.738
26 1.000 1.000 1.000 0.815 0.852 0.956 0.560 0.655 0.855 0.426 0.520 0.819 0.481 0.596 0.807
27 0.653 0.759 0.859 0.837 0.852 0.982 0.544 0.601 0.906 0.442 0.513 0.860 0.513 0.826 0.622
28 1.000 1.000 1.000 0.662 0.759 0.871 0.435 0.578 0.753 0.564 0.927 0.609 1.000 1.000 1.000
29 0.526 0.619 0.850 0.567 0.708 0.801 0.365 0.461 0.793 0.347 0.592 0.586 0.445 0.668 0.666
30 0.754 0.842 0.895 0.786 0.820 0.958 0.555 0.624 0.890 0.608 0.820 0.741 1.000 1.000 1.000
31 0.646 0.734 0.881 0.681 0.752 0.906 0.469 0.560 0.836 0.515 0.792 0.650 0.628 0.755 0.832
32 1.000 1.000 1.000 1.000 1.000 1.000 0.540 0.596 0.906 1.000 1.000 1.000 1.000 1.000 1.000
33 1.000 1.000 1.000 1.000 1.000 1.000 0.626 0.868 0.722 0.705 0.874 0.806 1.000 1.000 1.000
34 0.655 0.785 0.833 0.649 0.680 0.955 0.403 0.479 0.842 0.399 0.610 0.654 0.509 0.722 0.704
35 0.733 0.850 0.863 0.685 0.800 0.856 0.441 0.603 0.731 0.492 0.826 0.596 0.672 0.915 0.734
36 0.723 0.795 0.909 0.666 0.813 0.819 0.417 0.532 0.783 0.386 0.750 0.514 0.545 0.844 0.647
37 1.000 1.000 1.000 0.848 0.892 0.951 0.678 0.754 0.898 0.579 0.627 0.924 0.608 0.765 0.794
38 1.000 1.000 1.000 1.000 1.000 1.000 0.704 0.744 0.946 1.000 1.000 1.000 0.568 0.665 0.854
39 1.000 1.000 1.000 1.000 1.000 1.000 0.504 0.790 0.638 0.495 0.929 0.533 0.432 0.730 0.592
40 1.000 1.000 1.000 1.000 1.000 1.000 0.483 0.627 0.770 0.346 0.597 0.581 0.445 0.728 0.611
41 0.478 0.565 0.845 0.575 0.614 0.938 0.322 0.396 0.813 0.320 0.545 0.588 0.533 0.757 0.704
42 0.765 0.954 0.802 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
43 0.821 0.978 0.839 0.748 0.887 0.843 0.491 0.633 0.775 0.445 0.723 0.616 0.534 0.797 0.669
44 0.711 0.814 0.874 0.735 0.848 0.867 0.452 0.560 0.808 0.422 0.661 0.639 0.609 0.781 0.780
45 1.000 1.000 1.000 1.000 1.000 1.000 0.433 0.585 0.739 0.140 0.270 0.519 0.222 0.970 0.229
46 0.555 0.689 0.806 0.585 0.783 0.748 0.456 0.595 0.767 0.365 0.573 0.637 0.613 0.812 0.754
47 1.000 1.000 1.000 0.775 0.925 0.838 0.411 0.567 0.725 0.431 0.724 0.594 0.593 0.829 0.716
48 1.000 1.000 1.000 1.000 1.000 1.000 0.555 0.645 0.861 0.480 0.573 0.838 0.557 0.661 0.843
49 0.273 0.399 0.685 0.610 0.703 0.867 0.422 0.479 0.881 0.469 0.706 0.665 0.599 0.796 0.753
50 0.585 0.734 0.797 0.759 0.894 0.848 0.432 0.544 0.794 0.380 0.594 0.639 0.411 0.565 0.726
51 1.000 1.000 1.000 0.584 0.788 0.741 0.681 0.965 0.706 0.374 0.758 0.494 0.607 0.781 0.778
52 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
53 0.674 0.741 0.910 0.683 0.718 0.951 0.426 0.504 0.845 0.331 0.526 0.630 0.459 0.635 0.724
Average 0.759 0.823 0.915 0.759 0.823 0.918 0.517 0.617 0.832 0.482 0.677 0.699 0.614 0.790 0.770
SD 0.168 0.135 0.071 0.134 0.108 0.067 0.160 0.151 0.076 0.191 0.160 0.132 0.181 0.115 0.134
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The Evolution and Determinants of Chinese Property Insurance Companies

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Journal of Management Science and Engineering 6 (2021) 449e466

Contents lists available at ScienceDirect

Journal of Management Science and Engineering

The evolution and determinants of Chinese property

2. Literature review and theoretical framework

2.1. Literature review

2.1.1. DEA-based performance assessment of insurance ﬁrms

2.1.2. The proﬁtability of insurance ﬁrms

2.2. Hypotheses development

2.2.1. Firm size and ﬁrm performance

2.2.2. Product diversiﬁcation and ﬁrm performance

2.2.3. Firm age and ﬁrm performance

3.1. DEA-based proﬁt ratio efﬁciency

3.2. Proﬁt ratio change index and its decompositions

Fig. 1. Illustration of profit ratio change index.

3.3. The Tobit regression model

4.1. Indicators and data

4.1.1. Inputs and outputs indicators

References Inputs Outputs

Types Important indicators General explanation

Types Indicators Deﬁnitions

4.1.2. Data set

4.2. Proﬁtability evaluation of the Chinese property insurance industry

4.2.1. Results of DEA efﬁciencies

Fig. 2. Changes in PI, MI, and AMI.

4.2.2. Results of DEA-based indexes

Fig. 3. Changes in MI, TEC, and TC.

Fig. 4. Changes in AMI, AEC, and ATC.

4.3. Determinants of proﬁtability of the Chinese property insurance industry

4.3.1. Variables and data set

PEot ¼ bo þ b1 Assetot þ b2 ðAssetot  Assetot Þ þ b3 Productot þ b4 Ageot þ εot (11)

4.3.2. Results of Tobit regression analysis

5. Conclusions and discussion

Variables Deﬁnition Data source

Coef. p>|t| Coef. p>|t| Coef. p>|t| Coef. p>|t|

Declaration of conﬂict interest

The authors declare no conﬂict of interest.

Appendix A. Descriptive statistics for input and output indicators.

2013 Max 182473.39 10598.48 114948.53 11065.86 19011.13 25926.36

Appendix B. Calculation results of efﬁciency scores.

Year 2013 2014 2015 2016 2017

Year 2013 2014 2015 2016 2017

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PEot ¼ bo þ b1 Assetot þ b2 ðAssetot Assetot Þ þ b3 Productot þ b4 Ageot þ εot (11)