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J. L. Peng, B. R. Chang, S. W. Du Department of Risk Management & Insurance Shih Chen University

The Impact of Financial Holding Company Act in Taiwan A study on the revenue structure changes in the insurance and banking industry. J. L. Peng, B. R. Chang, S. W. Du Department of Risk Management & Insurance Shih Chen University. Introduction.

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J. L. Peng, B. R. Chang, S. W. Du Department of Risk Management & Insurance Shih Chen University

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  1. The Impact of Financial Holding Company Act in TaiwanA study on the revenue structure changes in the insurance and banking industry J. L. Peng, B. R. Chang, S. W. Du Department of Risk Management & Insurance Shih Chen University

  2. Introduction • Through documented facts financial holding company produces opportunity at integration and synergy • Through Act set the standard of integration • After the Act, any visible effect?

  3. Introduction (conti.) • Bankassurance became a standard after the Act • 48 billion RMBsold through Banks • 35.71% FYP • Who took the advantage of whom? • Bank or Insurance is better off?

  4. Introduction(conti.) • Use revenue data from the insurance and banking business to identify the structure changes and, indirectly, synergy.

  5. Research DesignVerification of the Structure Changes Revenue Error Data Estimation 94 95 96 97 98 99 00 01 02 03

  6. Research Reference • Expansion • Shen（2002）use the data of bank from U.S. during 1997 to1998，US Bank holding companies perform better than independent banks. • Boyd & Graham(1988),Chang（2000）, Tsai et.al（2001）find Operational risk is reduced when integrate bank with insurance.

  7. Research Reference Effect of Integration to the Insurance • Peng et. al（2007） • Adapting multiple sales channel methods produces additional profits for the insurance company and also provides choices to consumers. • Wang et. al（2006） • Life policy sold through bankassurance channel raises profits, but • No significant difference whether the insurance company is part of a financial holding entity. • Wang et. al（2007） • Banks profit was raised if the bank participate in selling insurance policies, and • Bank sells policies from multiple carriers has more advantage than bank works with single carrier.

  8. Segregated Segment (Before) Ｉ Ｂ Ｂ Ｉ Ｂ Ｓ Ｂ Ｂ Ｓ Ｂ Ｉ Ｉ Ｓ Ｉ Ｓ Ｓ Ｉ Ｓ Ｂ Ｂ Ｂ Ｉ Ｉ Ｓ

  9. At the Beginning: M&A (After) Ｉ Ｂ ＦＨＣ Ｂ Ｉ Ｂ Ｓ Ｂ Ｂ Ｓ Ｂ Ｉ Ｉ Ｓ ＦＨＣ Ｉ Ｓ Ｉ Ｓ Ｓ ＦＨＣ Ｂ Ｂ Ｂ Ｉ Ｉ Ｓ

  10. Integration(Emulsion) Ｉ ＦＨＣ Ｂ ＦＨＣ Ｂ Ｉ Ｂ Ｓ Ｂ Ｂ Ｓ Ｂ Ｉ Ｉ Ｓ Ｉ Ｓ Ｉ Ｓ Ｓ ＦＨＣ Ｂ Ｂ Ｂ Ｉ Ｉ Ｓ

  11. Financial Holding Company 100% 100% 100% Banks Securities Insurance Supervision Frame Work 5% 5% Airline Futures Subsidiaries Biotech Investment

  12. Financial Holding Company and the Insurance Subsidiary Financial Holding Company Bank Subsidiary Revenue Insurance Policy Insurance Subsidiary Securities

  13. Hypothesis • Hypothesis I • Integration produce positive impact with respect to insurance revenue • Hypothesis II • Integration produce positive impact with respect to banking revenue • Hypothesis III • Exist significant revenue increase to those who were integrated into the holding company

  14. Research Method • To verify the structure change in the industry • To verify the structure change in the company • Empirical Methodology • Adjustment Dickey-Fuller（ADF） • ARMA • Chow Test

  15. Data in use • Revenue Data • Insurance：Monthly Premium Received • Banking：Monthly Revenue • Duration • Insurance ：1994-2005，144 sets of data • Banking：1996-2005，120 sets of data

  16. Insurance Monthly Premium July Effect

  17. Insurance Premium (Difference)

  18. Banking Monthly Revenue

  19. Banking Revenue (Difference)

  20. Insurance/Banking Chow TestResult 表2 Note： 1、**and*** denote significance at 5％ and 1% levels, respectively.

  21. Subsidiary Chow TestResult

  22. Conclusion • Beside 2002, there lacks support for accepting hypothesis I • Take insurance industry as a whole, the revenue is increasing through out the years and no obvious structure change • During 2001-2004, we fail to reject hypothesis II • Banking revenue increases with structure shifting in its revenue • Generally speaking, banks took initiative in the integration and expanded with existing foundation. • Banks gains more than Insurances

  23. Channel Integration Product Direction Insurance H Channel Cost L Bank LTrustH

  24. Conclusion • There is a significant advantage for an insurance company to be a subsidiary of a financial holding company • Restriction • Duration is limited • There is no distinguish between FYP and renewal income.

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