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Literature Review

The initial studies on the efficiency of U.S. life insurers, Grace and Timme (1992) Yuengert (1993) and Gardner and Grace (1993) mostly focused on scale economies. These studies tend to find evidence of significant scale economies in the industry, although larger firms generally are found to exhibit decreasing returns to scale. Weiss (1991) analyzed factor productivity of 5 countries of Organization for Economic co-operation and Development (OECD) – France, Germany, Japan, Switzerland and US spanning 1975 to 1987.They found that US and Germany had high productivity while France, Japan and Switzerland were below average. Fecher et al.(1993) used the Data Envelopment Analysis and Stochastic Frontier Approach model and examined the technical efficiency of life insurers and non life insurers of France during 1984 to 1989. The inputs used in their model were labor cost and other outlays. On the output side, the factors included only Gross premium. The conclusion of the study was that there was high correlation between parametric and non parametric results and wide dispersion in the rates of inefficiency across companies. Delhausse et al.(1995) studied technical efficiency of non life insurer in Belgium and France by using Data Envelopment Analysis and Stochastic Frontier Approach method. They found that the technical efficiency of France was more than Belgium. But the overall technical efficiency was quite low in both countries. They also found that non profit companies were more efficient than profit companies.