As with other financial services institutions, life insurance contributes significantly to the
economy, both at the micro an d macro level. At the micro level, life insurance is a means of
income protection to a family upon death of a breadwinner and reduces the anxiety of polic y
owners in face of future life uncertainties (Derbali, 2014). There are certain life insurance
variants such as endowment policies that offer benefits to the insured in the event of longevity
rather than mortality, where a certain amount of proceeds will be paid out upon maturity,
acting as long term personal savings. At the macro level, premiums allocated to life insurance
form part of the economy’s financial capital, which is a vital resource for investment activities,
simultaneously promoting long-term economic growth (Ghosh, 2013). Furthermore, these
funds can mitigate the financial risk to which a country is exposed during the downturns of
business cycles. The literature provides evidence of a positive relationship between the
efficiency of financial institutions and the national economy, with f inancial institutions facilitating
the transfer of risk and efficiently allocating resources in order to provide rigorous support to
investment activities in the country (Sambasivam and Ayele, 2013).
The nature of life insurance is distinct from other types of business due to its unique intangible
feature. The “price” of life insurance is known as premiums, which starts at the inception of the
policy and involves committed periodic payments over an uncertain, long-term period. The
recipient of life insurance benefits are the beneficiaries rather than the insured or policyholder,
who will receive the proceeds upon death of the insured. Due to the long term and uncertain
nature of life insurance policy contracts, the sustainability of life i nsurance companies
becomes crucial, and it is therefore imperative for insurance companies to be financially
solvent and stable so as to be profitable (Charumathi, 2012). Investors would like to know if a
life insurance company is worth their investment, and policyholders need to be assured that
the company is able to meet its obligations of fulfilling claims under a policy ( Oino, 2013).
Aremu et al. (2013) highlight the importance of studies in regards to the profitability of f irms, as
profitability is the key factor for companies to continuously g row and expand their business
while contributing to the nation’s productivity and economic growth.
The continuous challenges in the local and global business environment indeed requires life
insurance firms to stay abreast with strategies that would strengthen their competitive
advantage. According to the resource-based view (RBV) (Welnerfelt, 1984), a firm’s
performance and ability to gain competitive advantage depend largely on the unique
resources owned by the firm. In regards to a life insurance firm, most of its resources can be
categorized as intangible assets because the core business of life insurance firms is provid ing
financial and risk management services. Life insurance policies are underwritten based on
uncertain mortality risks; hence, the ability of the firm to sustain and succeed in the long run
depends heavily on the prudency and competency of the life insurance firms’ risk managers.
To stay profitable, it is crucial for managers to be incisive and rational in their decisi on making.
In addition, because of the long-term nature of life insurance, policies are usually sold and
marketed via the traditional way –through agents. Thus, establishing good customer
relationships is crucial to sustain in the industry. Having a reputable brand equity, strong
goodwill and solid financial performance are hence argued to be vital resources of li fe
insurance firms and are therefore central to the success and sustainability of these companies.
This study is an exploratory study that examines the relationship between the profitability
and internal factors (size, volume of capital, asset tangibility, premium growth, liquidity and
underwriting risk) of selected life insurance companies within a group of Asian countries,
namely, China, Hong Kong, Taiwan, Singapore, South Korea, Thailand and Malaysia. The
main reason for the study to treat the selected life insurance companies within these Asian
countries collectively is due to high international trade liberalization within the region.
Vadlamannati et al. (2009) highlight that Asian countries are integrated with the rest of
global market and the high integration have pushed their economic growth rate
tremendously. Asian countries tend to be more liberal and minimize international trade
barriers to promote more local companies to venture abroad or to attract more foreign
PAGE 534 jJOURNAL OF ASIA BUSINESS STUDIES jVOL. 12 NO. 4 2018