INTAJ Vol 7 (July 2014)

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These articles had been published in Insurance and Takaful Journal Volume 7 (July 2014). Click the title to read more about the articles.

Growth Opportunities, Earned Premium Income and Commission of Insurance Industry in Malaysia

Dr Cheng Fan Fah
Associate Professor
Universiti Putra Malaysia

Lee Hui Sin
Universiti Putra Malaysia

Abstract: Insurance industry is one of the important industries in Malaysia. Due to continuing strong growth in the Malaysian economy the market demand for products has been increasing. Hence, a strong financial fundamental combined with industry strength is vital for insurance-based companies to continuously do well in their business. This paper analyses the financial performance and also investigates whether there is growth opportunity of eight insurance-based companies in Malaysia from year 2007 to year 2011. The financial ratio analysis shows that it is important and useful for companies to perform financial performance analysis to guide them on their current status and help them to plan for better financial prospects. Linear regression results examine the relationship of growth opportunity for the insurance industry in Malaysia with earned premium income, net investment income, net claims incurred, commissions paid, total assets and total liabilities. Significant negative relationship is found between commissions paid and growth opportunity insurance industry in Malaysia. The significant relationship between the commission paid and growth opportunity insurance industry in Malaysia suggests that companies should adequately implement or administer arrangement on commission paid policy.

Keywords: insurance industry, earned premium, claim incurred, commission paid

Operational Risk Management in Islamic Insurance Companies

Maha Kacem
CODECI Department
Faculty of Economics and Management
Sfax University Tunisia

Nejib Hachicha
CODECI Department
Faculty of Economics and Management
Sfax University Tunisia

Abstract: "Operational Risk," which has long been underestimated, has become a major challenge of the sector. However, the New Solvency II Standard imposed to insurance companies a new regulatory framework more stringent but more suitable for their risk. Indeed, one of the major innovations is that insurance companies are required to mobilise a part of their assets to cover their exposure to operational risks. Applied to the insurance field, this article aims to theoretically analyze the various dimensions of operational risk by using the Loss Distribution Approach (LDA) which is the most frequently statistical approach used for the aggregation of loss distributions. This approach consists in establishing, for each business line and each type of event loss distribution, the curve of distribution of the amounts of losses and the curve of the frequency distribution on a given time interval. Both distributions are then combined using a numerical algorithm such as the Monte-Carlo simulation. This paper has two main contributions related to the quantification of operational risk for the Islamic insurance. Firstly, it provides a theoretical framework in order to estimate the operational risk for the Islamic insurance. Secondly, it contains an application of the "LDA" method to quantify operational risk for an Islamic insurance so that it can be better managed in the future.

Keywords: operational risk, takaful insurance, loss distribution approach

International Linkages on Malaysia Futures Markets: Evidence from Equity and Commodity Futures

Mohd Izwan Mahadi
Universiti Teknologi MARA Terengganu

Wan Mansor
Universiti Teknologi MARA Terengganu

W. Mahmood
Universiti Teknologi MARA Terengganu

Abstract:This paper examines the cross-market linkages between Malaysia equity and commodity futures markets with their world’s counterpart. The index futures (FKLI) and crude palm oil futures (FCPO) represent Malaysia equity and commodity futures markets, while S&P500 futures (SPF) and Dalian RBD Palm Oil (DCE) proxy for the worlds’ equity and commodity futures markets, respectively. Using two-step Engle-Granger cointegration test and Johansen-Juselius procedure, the results show that both Malaysia equity and commodity futures markets are cointegrated with the worlds’ futures markets. Furthermore, applying the short-run dynamics vector error correction model (VECM) and Granger non-causality tests, the study report a bidirectional relationship between Malaysia equity futures market and its world counterpart and uni-directional relationship between Malaysia commodity futures market and its world counterpart. The results suggest that global portfolio diversification would produce minimal benefits in the long run. However, we show that crossmarket hedging and arbitrage are feasible temporary mispricing exist.

Keywords: cointegration, equity & commodity futures, VECM

 

Estimation of Medical Care Count Data Using Zero-Inflated Regression Models

Noriszura Ismail
Faculty of Science & Technology
Universiti Kebangsaan Malaysia

Abstract: This study relates zero-inflated negative binomial (ZINB) and zero-inflated generalised Poisson (ZIGP) regression models through mean-variance relationship, and suggests the application of these models for zeroinflated and overdispersion count data. For illustration purposes, ZINB and ZIGP regression models are fitted to medical care count data. Issues of moral hazard and adverse selection behaviors are also addressed in this study.

Keywords: zero-inflated negative binomial regression, zero-inflated generalised poisson regression, medical care, moral hazard, adverse selection.

 

Market Orientation and Organisational Performance from The Resource Advantage - Theory of Competition Perspective

Norizan Remli
Faculty of Finance & Banking
Universiti Sultan Zainal Abidin

Wan Norhayate Wan Daud
Faculty of Finance & Banking
Universiti Sultan Zainal Abidin

Fakhrul Anwar Zainol
Faculty of Finance & Banking
Universiti Sultan Zainal Abidin

Abstract: The purpose of this paper is to describe how resource-advantage theory of competition can be used to explain the role of market orientation and innovation in achieving superior performance within the organisation. A number of authors have explored the applicability of this theory. This paper is based on the research conducted among the Composite Takaful Operators in Malaysia. The research framework was analysed from the perspective of resource-advantage theory of competition.

Keywords: resource-advantage theory of competition, takaful, malaysia

Climate Risks and Its Influence on Paddy Farmers’ Intention to Participate in Agriculture Takaful

Yon Bahiah Wan Aris
Institute of Business Excellence
Faculty of Business Management
UITM Shah Alam

Affiaine Ahmad
Faculty of Business Management
UITM Shah Alam

Nurul Aien Abd Aziz
Arshad Ayub Graduate Business School
Faculty of Business Management
UITM Shah Alam

Abstract: The main purpose of this paper is to investigate the effects of climate risks on the intention to participate in Agriculture Takaful among paddy farmers. 250 respondents comprising paddy farmers in Kedah and Selangor participated in this survey. Findings revealed most frequent and severe risks were pest attacks, followed by floods, droughts and storms. The risks perceived by the farmers were also found to be significant in determining their intention to participate in the proposed Agriculture Takaful.

Keywords: agriculture takaful, risk, intention to participate, climate change