Size and Efficiency in European

This paper explores the efficiency of European specialist and composite insurers transacting long-term insurance business. Value measures of insurance company inputs and outputs are utilised to undertake an exploration of the technical efficiency of European insurers. This is achieved by benchmarking the relative performance of insurers licensed to transact long-term business in fifteen European countries using data from Standard & Poor’s Eurothesys database for the years 1996-1999. Data Envelopment Analysis is utilised to generate three different efficiency measures for each long-term insurer (namely pure technical efficiency, scale efficiency, and mix efficiency. It is clear from the analysis that there are wide variations in all types of efficiency. The most efficient insurers in pure technical terms are likely to be either very large or very small (specialist) insurers. Mutuality and financial security are also conducive to technical efficiency. A comparison of average efficiency among fifteen European countries shows some striking international differences. Insurers transacting long-term business in the UK, Spain, Sweden and Denmark are likely to have highest average levels of technical efficiency. On the other hand UK insurers appear to have particularly low levels of scale and mix efficiency when compared to their European counterparts. Size and Efficiency in European Long-Term Insurance Companies Stephen Diacon, Ken Starkey and Christopher O’Brien