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Insurance question (Economies of scale)...


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Just curious, which type of insurance businesses will benefit less of the size (economies of scale)? Could someone comment about this? Which ones and why? 

 

I found some studies, but they were industry specific (how important EOS is in life insurance business etc). i'm looking more general answer. 

 

thank you, and sorry about my english! 

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I think in traditional life and annuities scale is not really a big factor. Even a smaller Insurer like Kansas City Life hat 100 000s of customers.

 

The Insurer can only ( or the most of it s assets) invest in investment-grade bonds or very conservative morgages... The better return of equity of the real big insurers often comes from a little bit less conservatism ( look at National Western for example or American National) or that the insurer has additional businesses like asset management etc.

 

On the other side small insurers can have a fantastic small franchise. Look at National Western ( nearly 43 million dollars in profit on 130 million Dollars of premiums in their internation life operations).

 

The pro point for the big insurer could be that A) people think the big insurer is safer! (That s a point for many people. Of course it s heavy regulated. But i know people who chose Allianz over smaller competitors because of the brand (i m German) b) the big insurer has much more troops going from door to door. On the other side in times of low interest rates the small fixed costs of the little insurers could be little plus.

 

My pro point for smaller insurers is A) the balance sheets is often easier to understand (less trading assets...). b) The smaller insurers often operates in only one currency and one market (laws for life insurance is different from country to country). So a Met Life / Allianz etc. is harder to understand.

 

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