Performance Persistence in the Insurance Markets - Comparative Analysis of Selected Central and Eastern European Countries

(ProQuest: . denotes formulae omitted.)IntroductionThis article deals with some important aspects of the trends in performance persistence in the insurance markets in selected Central and Eastern European countries. The area of research comprises four countries: Croatia, Poland, Hungary and Slovenia during the fourteen-year period from 1998 to 2011. Although, all four mentioned countries are now members of the European Union, they were selected for the analysis since these are the countries with similar economic and political background. The insurance business in these Central and Eastern European countries is relatively proportional to the dimensions of their markets. The potential of these countries is undeniable and it is illustrated by the rapid growth of the insurance industry (Comite Europeen des Assurances, European Union Enlargement 2004). Moreover, former state monopolies still hold the leading market position, but, they are rapidly losing market share.However, the differences between insurance markets of these countries are substantial. For example, insurance market development indicators, such as insurance density and penetration, are much higher in Slovenia. Hungary and Poland are different from the other countries insofar they have a relatively high level of life insurance premium in total premium, i. e. life insurance represents more than 1/2 of the total insurance markets while in Croatia and Slovenia it is 27% and 29% respectively.Besides their representativeness, these countries were chosen due to the data availability as well. The year 1998 is taken as the starting year of research due to the fact that earlier data are not comparable because of the different ways of calculating insurance premiums in Croatia. In order to avoid possible misinterpretation in period before and after the 1998th and to ensure comparability, the data in the 1998- 2011 period were used.The performance persistence is much analysed topic, but in the financial services sector it generally focuses on mutual or pension funds. Therefore, we wanted to explore the performance persistence in the insurance sector and to contribute to the existing financial literature with new empirical evidence on performance persistence of insurers. Moreover, the study improves the methodological approach by conducting comparative analysis of performance persistence between four Central and Eastern European countries.The rest of the paper is organised as follows. The next section gives an overview of the relevant literature. Third section gives a review of the characteristics and recent developments in the insurance markets in the selected Central and eastern European countries. The fourth section describes the sample construction. The fifth section outlines methodology applied whereas the results of the empirical analysis are reported in the sixth section. The final section concludes with summary of the main points of the paper.Literature ReviewPerformance persistence has intrigued many scientists over the years. Therefore, in recent decades scientists generated a large number of studies dealing with this issue. These studies differ in what type of companies, i. e. industry is the subject of analysis, the performance measure used, method applied and both geographical and time coverage.There are a number of studies that have found strong evidence of performance persis tence, but there are also a great number of studies that do not support this evidence suggesting that the use of different methodologies is one of the key reasons for the varied results found in the literature.Although the scientists have produced many performance persistence studies there is a lack of studies dealing with performance persistence of insurers. Therefore, we will only mention here a few recent studies focusing on financial sector and briefly document their findings.Ferruz, Sarto and Vargas (2004) have conducted a financial study of performance persistence in Spanish short-term fixed income investment funds. …