A study on the effect of inflation rates on the profitability and the solvency of the top ten life insurance companies in the Philippines for the years 1995-2004
Inflation rate is said to have an effect on the operations of a business entity. It is believed that high inflation rate narrows down profit margins and shoots up cost of liabilities. With the attempt to prove such presumption, a correlation test was conducted to study the effect of inflation rate s...
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| Main Authors: | , , |
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| Format: | text |
| Language: | English |
| Published: |
Animo Repository
2006
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| Subjects: | |
| Online Access: | https://animorepository.dlsu.edu.ph/etd_bachelors/7558 |
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| Institution: | De La Salle University |
| Language: | English |
| Summary: | Inflation rate is said to have an effect on the operations of a business entity. It is believed that high inflation rate narrows down profit margins and shoots up cost of liabilities. With the attempt to prove such presumption, a correlation test was conducted to study the effect of inflation rate specifically on the profitability and solvency of the top ten life insurance companies in the Philippines for the years 1995 to 2004. Insurance companies rely heavily on income from its investments to pay for benefits, dividends, and expenses. Since life insurance companies in the Philippines invest in interest sensitive assets, and inflation rates affect movements of interest rates, it is important to take into consideration the effects, if any, of price increases.
The effect of inflation rate was determined with the use of profitability and solvency ratios, tested by pearson correlation coefficient, regression, multicollinearity, and the Durbin-Watson statistic for autocorrelation. No significant effects were established due to the fact that the top ten life insurance companies in the Philippines were able to adjust their premiums based on projected movement of interest rates and properly hedge their investments.
However, correlation coefficients show that there is not enough reason to neither accept nor reject the null hypothesis. This means that inflation rate could have affected the profitability and the solvency of the Philippines' top ten life insurance companies but the overall impact was not great enough to dent them. |
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