The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1463-5771.htm

Performance
Performance analysis of Takaful analysis of
and conventional insurance Takaful

companies in Saudi Arabia

Muhammad Hanif Akhtar 677
Department of Finance, Prince Sultan University, Riyadh, Saudi Arabia and
Received 27 January 2017
Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan Revised 18 March 2017
Accepted 1 April 2017

Abstract
Purpose – The purpose of this paper is to analyze the performance of Takaful and conventional insurance
companies in Saudi Arabia during a period of 2010-2015 by using the data envelopment analysis (DEA)
technique for the whole population of insurance companies.
Design/methodology/approach – Given its objectives, the present study adopts the most prevalent DEA
approach, by using the DEA Solver-Pro (Version 13). The DEA has emerged as a valuable analytical research
technique. It measures the relative efficiency of firms in the presence of multiple inputs and outputs, based on
a linear programming technique, and attempts to find out the firms that determine an envelopment frontier,
are super efficient and with a higher productivity index.
Findings – It stems from the analysis that on a yearly basis, the average efficiency scores of firms have
soared up overtime since 2010 till 2014 reflecting that most of the companies did well on the efficiency front.
It is notable to mention here that the top slots for super efficiency are taken over by smaller firms, while the
bigger firms are laggards here rather than the leaders. This reflects that the larger insurance firms need to
augment their efficiency levels through more efficient utilization of inputs. The results of the study reveal that
both Takaful and the larger conventional insurance firms in the country need to strengthen their operations
more efficiently in order to take advantage of the economies of scale and scope. Market share and profitability
are important determinants of efficiency.
Research limitations/implications – The larger insurance firms in the country need to a possible solution
to the issue of inefficient market dynamics might lie in consolidation of the market through mergers and
acquisitions. However, this needs a direct involvement of regulators in the Kingdom so that the market
becomes healthy. Even though the Saudi insurance sector appears to have benefited from the compulsory
insurance regulations for the expatriates and their families, however, there is still a need for efficiency and
productivity improvement in the industry. The Takaful firms need to adopt such measures that would
help them to take advantage of their specialized products toward efficiency vis-à-vis productivity drives.
Finally, the insurance firms in Saudi Arabia need to adopt the use of threshold practices in order to compare
their relative performance to improve on their efficiency and productivity levels by catching-up with the
frontiers of best practices.
Originality/value – Based on the available literature, an exclusive study on the insurance sector of Saudi
Arabia is so far non-existent. The study stands as pioneer to provide a starting point on overall performance
evaluation of insurance firms in Saudi Arabia in various contexts in addition to the current and future trends
of the insurance sector in the Kingdom.
Keywords Data envelopment analysis, Saudi Arabia, Technical efficiency, Super efficiency, Takaful firms
Paper type Research paper

1. Introduction
The Saudi Arabian insurance industry has been booming primarily because of increasing
demand through high government outlays and economic development projects. Although
the market has been thriving, yet it is unclear to what extent it has been efficient?
The efficiency stands as a key concern of policy makers to encourage further development
of the insurance industry (Yao et al., 2007). This paper evaluates technical and super
efficiencies of insurance companies along with productivity analysis in the Kingdom of Benchmarking: An International
Saudi Arabia (KSA) with an attempt to contrast it across conventional vs Takaful-based Journal
Vol. 25 No. 2, 2018
pp. 677-695
The author is grateful to Prince Sultan University for financial support towards this research through © Emerald Publishing Limited
1463-5771
an incentive-based research project (IBRP) number-IBRP-CBA-2013-11-14. DOI 10.1108/BIJ-01-2017-0018
BIJ firms. The research is intended to be comprehensive as it does analyze the population of
25,2 insurance firms[1] in Saudi Arabia over a period of six years, i.e. 2010-2015. This facilitates
consistency check on performance and comparisons overtime.
The study makes an important contribution to the literature as it is the pioneer and
comprehensive one to explore about the efficiency and productivity of insurance firms in
Saudi Arabia[2] for an extensive period. Second, it extends the literature on efficiency by
678 comparing the performance of Takaful and non-Takaful insurance firms in the Kingdom.
Hence, the inter-firm comparisons not only provide information about the relative efficiency
and competitiveness of firms, operating under different modes of business, but also improve
our understanding on efficiency differences across the two types of insurance firms in the
country. Finally, the present research differs academically across the existing literature as
it extends the application of both radial and non-radial measures of efficiency estimates
of the insurance sector in the Kingdom. The research is expected to accomplish the
following objectives:
(1) analyze insurance industry trends in the Kingdom;
(2) develop an insight on various efficiency and productivity fronts of the sector;
(3) compare performance of Takaful-based (Shari’ah complaint) vis-à- vis conventional
firms;
(4) explore about the efficiency determinants of such firms; and
(5) to come up with policy implications both for research and public policy areas.
The remainder of the paper is organized as follows. Section 2 provides the contextual
background. Section 3 reviews the extant literature on efficiency of insurance companies
worldwide. Section 4 describes the data and methodology employed for research. Section 5
presents the major findings of the study along with those of efficiency determinants.
The final part concludes with policy implications.

2. Insurance sector in Saudi Arabia

The Saudi insurance market stands as one of the largest and fastest growing markets in the
Gulf region with a growth rate of 15 percent and with a size of SR35.6 billion during the year
2015. This was largely driven by growth in the health and vehicle insurance segments
which contributed 81 percent of the market (Albilad Capital, 2015). By the end of 2015,
the number of operational insurance and reinsurance companies licensed in Saudi market
reached at 33 excluding the two non-operational[3] ones.
These companies are seen as operating in at least one of the three main insurance areas
which include general insurance[4], health insurance as well as protection and savings
insurance. During the year 2015, growth of the insurance market was largely driven by
growth of the vehicle insurance premiums by 48 percent accelerating from average growth
of 30 percent during the year 2014. The insurance sector was represented 53 percent by
health insurance, 29 percent by vehicle insurance, 15 percent general insurance while the
remaining 3 percent by protection and saving insurance during the year 2015. Four of the
companies captured 56 percent of the market size, the share of 10 companies stood at around
29 percent while the remaining 19 companies accounted for 15 percent of total market share
(MS) (Albilad Capital, 2015). This reflects high levels of concentration in the Saudi insurance
sector leading to an oligopoly type of market structure in the economy.
Various factors stand as drivers of growth behind the insurance industry. First, there has
been strong economic growth in the Kingdom during the past few years which has mainly
resulted from exports of oil and gas products, sustained government spending on
infrastructure and social welfare projects. Higher economic growth has led toward increase
in infrastructure spending by the government and investments in the private sector leading Performance
to a surge in insurance activity in the country. Second, the mandatory insurance regulation analysis of
for expatriates working in Saudi Arabia and their families contributed to an increase in Takaful
demand for health insurance services by about 25 percent (Albilad Capital, 2015). Third,
binding by Saudi Arabian Monetary Agency (SAMA), the Central Bank of Saudi Arabia, for
all the insurance companies to follow domestic cooperative insurance model, has further
strengthened growth opportunities for the insurance sector. Fourth, the insurance sector is 679
enjoying a rise in its demand due to proliferation in awareness toward benefits of insurance
among society members. Finally, the mortgage law of 2012 has further intensified growth
avenues for the sector in the form of residential real estate insurance.
The sector is set to maintain a strong yearly growth of 14-17 percent during the next five
years fueled mainly by the enforcement of regulations (Arqaam Capital, 2016). Given the
current trends on weaker oil prices, budget cuts and liquidity constraints for the government,
the insurance sector is expected to be least affected due to mandatory insurance in health and
motor insurance areas. It is further expected that premiums would double by the year 2018
along with an increase in the numbers of insured vehicles by two millions. This reflects future
growth potential of the sector with a leading position in the Gulf region. Given this, it seems
interesting to explore about performance of insurance companies in the sector.

3. Overview of the literature

There exists a great amount of literature on the use of inputs and outputs used in various
studies. However, some of the worth-mentioning variables are reviewed in Table I.
However, in addition to the studies on efficiency, there exists a diverse amount of
literature on efficiency determinants of insurance companies worldwide. For example,
Rai (1996) analyzed the cost efficiency of insurance companies from 11 countries over a
period of five years, 1988-1992. Using the stochastic cost frontier and distribution-free
models of efficiency measurement, he discovered that x-inefficiencies vary across
country, firm size and specialization. He found the small firms as more cost efficient than
their large counterparts. Likewise, firms with specialized services were seen as more
cost efficient than those of the combined firms, offering both life- and non-life
insurance services.

Study by Technique Sample and period Inputs Outputs

Zimková (2015) DEA 13 Greek insurers Equity Premium written

(2013) total operating costs
Khan and Noreen DEA 17 Pakistani Labor, total fixed Invested assets, net premium
(2014) insurers (2006-2010) assets, business
services, equity capital
Al-Amri et al. (2012) DEA 39 insurance Net claims Net premium earned and
companies from management expenses net investment income
GCC (2005-2007)
Ansah-Adu et al. DEA 30 insurance Total capital, total Profit or loss, net premium
(2012) companies from operating cost and and investment income
Ghana (2006-2008) total investments
Barros et al. (2010) DEA and 71 Greek insurers Equity capital Invested assets losses
Simar and (1994-2003) labor costs incurred reinsurance
Wilson non-labor costs reserves and own reserves Table I.
Fenn et al. (2008) SFA European Total capital and Net claims incurred An overview of
insurance firms reserves input and output
(1995-2001) technical provisions variables used in
debt capital some of the studies
BIJ Using a translog cost function, Hao and Chou (2005) estimated the inefficiency for
25,2 16 Taiwan life insurance companies over the period of 1977-1999. They applied the
distribution free approach (DFA) to estimate the inefficiencies. For diversification of product
strategy, scale efficiency, MS and market growth ration, they tested for the relationship of
constants or residuals toward X-efficiencies.
Hussels and Ward (2006) investigated the efficiency of 78 German and UK life insurance
680 companies from 1991 to 2002. With the use of data envelopment analysis (DEA) and DFAs,
they computed the efficiency scores of firms in these countries and discovered that German
insurance companies were more efficient as compared to their UK counterparts.
Furthermore, they also discovered that administrative expenses and firm size had a
negative relationship with efficiency while claims and younger life insurance companies had
a positive association with the latter.
Luhnen (2009) undertook a comprehensive analysis of efficiency in the German
property-liability market. This research was necessitated by recent deregulatory
efforts following a rather traditionally high level of regulation in the German insurance
market. By employing a large sample of 148 insurers for the years 1995-2006, the cost,
technical, allocative and scale efficiency scores were calculated employing DEA.
One remarkable innovation derived from this research was the use of the recently
developed regression and bootstrapping approach proposed by Simar and Wilson (2007)
to analyze six efficiency determinants: size, distribution systems, ownership,
specialization, leverage and growth. A positive relationship was found to exist between
size and efficiency, i.e. large insurers were found to be more efficient than medium- and
small-sized insurers. In the area of distribution systems, Luhnen (2009) found that
exclusive agent insurers are more efficient than independent agent insurers. Mutual
ownership was found to be more efficient than stocks and in line with many insurance
literature whereas specialized insurers were found to be more technical and cost efficient
than those who spread their business across several lines. Little could, however, be
deduced from the relationship between efficiency and leverage on one hand as well
as growth on the other.
Kader et al. (2009) applied the DEA to examine the cost efficiency among a balanced
panel of 26 insurers operating in ten Islamic countries over the three years, 2004-2006.
It was found that non-executive directors contributed negatively to cost efficiency.
This was attributed possibly to a lack of financial management expertise among the
non-executive directors of Takaful insurance firms. Again, the separation of the CEO
and chairman functions proved to be inimical to cost efficiency. This was largely
believed to be as a result of Takaful’s unique institutional features and product-market
structure. However, board size and firm size was found to have positive effects on the cost
efficiency of Takaful insurers, suggesting that the larger firms are better placed than
smaller entities to realize operational improvements because of the relatively large
number of expertise they can draw from. Furthermore, cost efficiencies appear to emerge
from specialized product lines rather than more diversified outputs indicating that
economies of scope are not being fully realized by Takaful insurers. Finally, the effect of
regulatory environment was found not to be statistically significant in determining
insurance efficiency.
Afza and Kausar (2012) studied the efficiency determinants of insurance companies
in Pakistan over the period 2003-2007. They used the DEA to estimate the efficiency
scores of insurance companies in Pakistan. Having estimated efficiency scores, they
discovered investment, profitability and financial reforms as negatively associated
while claim as positively linked with the efficiency scores of life insurance companies.
The results were opposite in the case of non-life insurance companies for the
respective variables.
 Al-Amri et al. (2012) made the use of technical efficiency analysis and Malmquist Productivity Performance
Index (MPI) to test for the performance of 39 GCC insurance companies through a panel data analysis of
analysis of 2005-2007. Having discovered that the insurance industry was moderately efficient, Takaful
they suggested for a greater increase across efficiency performance of insurance companies in
the region. However, their sample was less representative of the insurance sector in Saudi Arabia
as only four of the insurance companies were included in the analysis.
Khan and Noreen (2014) have explored the efficiency of insurance companies in Pakistan 681
across various dimensions. The results of the study indicate that both Takaful and
conventional insurance companies were doing well on pure technical efficiency and scale
efficiency fronts. However, they were seen as poor performers on allocative as well as cost
efficiency grounds. In terms of relative performance of Takaful and conventional insurance
companies, the former were seen as better performers in the context of the technical,
allocative and cost efficiency as compared to their conventional counterparts. They further
pointed out that Takaful operators need to improve their scale efficiency by exploiting
scale economies.

4. Methodology
Given the objectives, the present study adopts the most prevalent DEA approach, by using
the DEA Solver-Pro (Version 13). The DEA has emerged as a valuable analytical research
technique for a variety of reasons[5]. The DEA entertains both the constant returns to scale
(CRS) and variable returns to scale (VRS) analyses. Charnes et al. (1978) proposed the use of
CRS called CCR model while Banker et al. (1984) suggested for the VRS named as BCC
model. The use of CRS indicates that the firms tend to operate at an optimal scale[6] and is
advantageous as it allows for comparison across small and large firms due to skewed
distribution of the sample. Under such a situation, the VRS raises the possibility for larger
firms in the sample to transpire as efficient ones, making efficiency comparisons difficult.
Hence, the present study assumes CRS using the CCR model where inefficient firms are
made efficient through proportional reduction of their inputs with output proportions held
as constant.
One of the issues in efficiency studies of insurance companies is the definition of inputs
and outputs. Unlike other service companies, the insurance firms make use of capital, labor
and other inputs to produce their services. Both labor and capital characterize as the
traditional inputs with different variations. Based on the extant literature, the present study
uses financial capital, net claims incurred and general and administrative expenses as three
inputs. To measure outputs in the financial services sector, Berger and Humphrey (1992)
suggested three approaches: the intermediation approach, user-cost approach and the
value-added approach. Given the risk-bearing (taking risk to reduce potential personal
losses) and risk-pooling (raising funds from policyholders and redistributing the money to
those who sustain losses) nature of services provided by insurance companies in various
lines of business, the value-added approach is considered to be the most appropriate for
efficiency studies of the insurance sector (Cummins and Weiss, 2013). Hence, the proposed
line of three outputs is represented by investment income, net premium earned and
investment and management fee income. The 3 × 3 model entertains the DEA convention
that the minimum number of decision-making units (DMUs) is greater than three times the
number of inputs plus outputs (Dyson et al., 2001). All of the input and output variables used
in the analysis have been deflated by the GDP deflator (2007 ¼ 100) based on the annual
report of the SAMA.
Out of the population of 35 insurance companies listed on Tadawul[7] (stock market) in
the KSA, the study is based on an analysis of 30 insurance companies since consistent
data were available for these companies during the period of analysis. Among the
30 insurance companies, 6 were Takaful (T) firms while the remaining 24 were the
BIJ non-Takaful (NT) firms. The data used for the study are secondary in the nature,
25,2 published in companies’ annual reports based on income statements and balance sheets.
Descriptive statistics of variables used in the study for the period 2010-2015 are listed
in Table II.

4.1 Technical efficiency

682 The CCR model allows each insurance company, termed as the DMU, to adopt a
set of weights that maximizes its relative efficiency. It is assumed that there are n DMUs
where each DMUj utilizes a vector of inputs, xi to produce a vector of outputs
known as yk. Hence, the input-oriented CCR model by Cooper et al. (2000) takes up the
following form:
min y
s:t:
Xn
lj xij pyxio ; i ¼ 1; 2; . . .; m
j¼1

X
n
lj ykj Xyko ; k ¼ 1; 2; . . .; s
j¼1

lj X0; j ¼ 1; 2; . . .; n (1)
In terms of the above equation, stage 1 estimates efficiency (θ) for the firm (O)
under consideration, while stage 2 calculates the sum of total value of the input
excesses and the output shortfalls for the same firm while the efficiency remains
fixed at (θ*) as estimated after the first stage. The second stage equation is produced
as follows:
X m Xs
max w ¼ ai þ bk
t¼1 k¼1

s:t:
Xn
lj xij þai ¼ y  xio ; i ¼ 1; 2; . . .; m
j¼1

X
n
lj ykj bk ¼ yko ; k ¼ 1; 2; . . .; s
j1

lj X0; ai p0 (2)
The symbols used in the equations above are θ is the efficiency score; xij the amount of input
i used by DMUj; ykj the amount of output k produced by DMUj; ai the input shortfall related
to ith input xi for the DMU under evaluation; bk the output excess related to kth output yk for
the DMU under evaluation; and w the total sum of input excesses and output shortfalls
related to DMU under evaluation.

4.2 Super-efficiency
The uses of super-efficiency models have become wide-spread in different contexts
(Seiford and Zhu 1999). A set of DMUs can be split into two groups: DMUs on the frontier
and the non-frontier DMUs (Charnes et al., 1991). In addition to the non-efficient, those on the
Variables Mean Maximum Minimum SD
Performance
analysis of
2010
Output variables
Takaful
Investment income 4,037.26 60,552 0 14,566.22
Net premium earned 355,366.29 2,659,379 0 68,6946.13
Investment and management fee income 8,931.19 107,074 0 26,146.93
Input variables 683
Equity
Net claims incurred 236,279.94 1,548,318 0 443,926.78
General and administrative expenses 14,241.00 89,432 0 22,441.04
2011
Output variables
Investment income 4,220.26 43,943 0 12,142.93
Net premium earned 403,700.19 3,098,063 20 783,122.79
Investment and management fee income 11,143.42 181,023 −254 42,570.81
Input variables
Equity
Net claims incurred 281,834.84 2,095,300 199 553,768.38
General and administrative expenses 13,114.29 93,801 0 26,472.62
2012
Output variables
Investment income 5,959.42 57,538 0 15,196.03
Net premium earned 468,255.71 3,951,189 3,643 975,299.40
Investment and management fee income 11,886.81 110,503 0 28,133.62
Input variables
Equity
Net claims incurred 356,472.77 3,231,709 784 806,793.96
General and administrative expenses 9,095.48 82,201 171 21,281.54
2013
Output variables
Investment income 5,959.42 57,538 0 15,196.03
Net premium earned 468,255.71 3,951,189 3,643 975,299.40
Investment and management fee income 11,886.81 110,503 0 28,133.62
Input variables
Equity
Net claims incurred 356,472.77 3,231,709 784 806,793.96
General and administrative expenses 9,095.48 82,201 171 21,281.54
2014
Output variables
Investment income 5,959.42 57,538 0 15,196.03
Net premium earned 468,255.71 3,951,189 3,643 975,299.40
Investment and management fee income 11,886.81 110,503 0 28,133.62
Input variables
Equity
Net claims incurred 356,472.77 3,231,709 784 806,793.96
General and administrative expenses 9,095.48 82,201 171 21,281.54
2015
Output variables
Investment income 5,959.42 57,538 0 15,196.03
Net premium earned 468,255.71 3,951,189 3,643 975,299.40
Investment and management fee income 11,886.81 110,503 0 28,133.62
Input variables Table II.
Equity 2,871.85 17,371.86 243.32 3,576.61 Descriptive statistics
Net claims incurred 356,472.77 3,231,709 784 806,793.96 of variables used in
General and administrative expenses 9,095.48 82,201 171 21,281.54 the study for the
Note: The variables are used in thousands Saudi Riyals period 2010-2015
BIJ frontier can be extremely efficient, efficient, weakly efficient with slacks. The input-oriented
25,2 super-efficiency CCR model by Zhu (2001) is given as follows:
min ysuper

s:t:
X
n
684 lj xij pysuper xio
j¼1; j a 0

X
n
lj ykj Xyko
j¼1; j a 0

X
n
lj ðja 0ÞX0 (3)
j¼1; j a 0

In the case of both CRS/VRS models of the DEA, the efficiency scores for the efficient DMUs are
equal to unity. In such situation, it becomes difficult to determine which of the efficient DMUs are
extremely efficient. The super-efficiency model facilitates the ranking of efficient DMUs as the
model works by deleting the efficient DMU under evaluation (O) from the production possibility
set (PPS) and measuring its distance to the remaining PPS. In case, the distance is small, the
super-efficiency of the DMU is considered as lower since the DMU marginally overtakes the
other DMUs. Simultaneously, if the distance is large, the super-efficiency of the DMU is higher
compared to the residual DMUs. Thus, the ranking of efficient DMUs is developed in order of the
distance obtained. The inefficient units during this process remain unaffected. In addition to that,
the super-efficiency model helps in identifying outliers[8] in the data set.

4.3 MPI
There are radial and non-radial measures of calculating the MPI. Since the radial measures
suffer from neglect of slacks, the present research computes MPI using the slacks-based
non-radial and oriented DEA model. The MPI estimates efficiency change of a DMU amongst
two time periods and is defined as the product of “Catch-up (C )” and “Frontier-shift (F )” terms:
MPI ¼ ðCatch  upÞ  ðFrontier  shiftÞ (4)
The catch-up (recovery) reflects the degree of efforts attained by a DMU for improving its
efficiency, while the frontier-shift (innovation) term reveals the change in efficient frontiers
surrounding the DMU between
 the two time periods say 1 and 2.The DMU  o at time period 1
is symbolized by x1o ; y1o while at time period 2, it is denoted by x2o ; y2o . The catch-up effect
is designated by the following expression:
d2 ðx0 ; y0 Þ2
C¼ (5)
d1 ðx0 ; y0 Þ1
When C W1, it indicates progress in relative efficiency from period 1-2, if C ¼ 1, it reflects
the status quo while a C o1 refers to a regress in the efficiency. The frontier-shift effect
assists to totally evaluate efficiency change of the DMU, as the catch-up effect is determined
by efficiencies
 measured by the distances from respective frontiers. The frontier-shift effect
at x1o ; y1o is described as follows:
" #1=2
d1 ðx0 ; y0 Þ1 d1 ðx0 ; y0 Þ2
F¼ 2  (6)
d ðx0 ; y0 Þ1 d2 ðx0 ; y0 Þ2
As discussed earlier, the MPI is the product of the C and F and is expressed through the Performance
following equation: analysis of
" #1=2 Takaful
d1 ðx0 ; y0 Þ2 d2 ðx0 ; y0 Þ2
MPI ¼  (7)
d1 ðx0 ; y0 Þ1 d2 ðx0 ; y0 Þ1

The MPI consists of four terms: δ1(xo, yo)1, δ2(xo, yo)2, δ1(xo, yo)2 and δ2(xo, yo)1. The first two 685
terms replicate measurements within the same time period, while the last two terms show
comparisons overtime. MPI W1 indicates progress in the total factor productivity of the
DMUo from period 1 to 2, while the MPI ¼ 1 indicates status in quo and MPI o1 refers to a
deterioration in the total factor productivity. It would be pertinent to mention here that the
MPI was calculated by using the non-radial measure of DEA where the outliers were
excluded from the analysis to ensure the normality of results.

5. Results and discussions

5.1 Efficiency results of the CCR and super-efficiency models
A preliminary investigation was conducted into the nature of returns to scale under which
insurance companies tend to operate in the Kingdom. The exploratory analysis revealed
that there was a marginal difference across the companies operating under constant vis-à-vis
the VRS as around 50 percent of the companies were operating under CRS. Given the
advantages of CRS and the arguments given by Russell (1990), the study assumes input-
oriented CRS for rest of the analysis. The CRS assumes that the efficiency of a firm is not
affected by size of the DMU and provides a measure of technical efficiency of firms.
The input-oriented CRS technical efficiency scores are reflected in Table III under the CCR
model. The results indicate that the Saudi insurance sector can be characterized by large
asymmetry among firms with their average efficiency scores ranging between 0.18 and 1.00
over the period from 2010 to 2015. The efficiency scores refer to the proportion of resources
that a firm should utilize to achieve the desired level of outputs.
Table III presents efficiency scores for the population of insurance companies in a
ranking order. The average efficiency score for the period 2010-2015 stands at 0.83 which is
higher than the average efficiency score of 0.61 for the GCC firms as reported by
Al-Amri et al. (2012). The same is reinforced by results of the standard deviations where the
dispersion of efficiency scores is lower for Saudi insurance firms but is higher for the GCC
firms as revealed by the findings of Al-Amri et al. (2012). This is an encouraging result as it
reveals that the insurance firms in Saudi Arabia are doing better than those of their GCC
complements. Certain other conclusions can be derived from the results presented in
Table III. First, it stems from the analysis that on a yearly basis, the average efficiency
scores of firms have soared up overtime since 2010 till 2014 reflecting that most of the
companies did well on the efficiency front. The slowdown in the year 2015 might be due to
intense competition among firms resulting in non-productive expenses. Second, around
47 percent of the companies were able to maintain their competitive position with an
average efficiency score of around 0.90, including the big three firms. This might be the
possible result of market fragmentation, an issue being faced by small insurers due
to their smaller size and high underwriting losses. The regulator needs to ensure market
consolidation to prevent the problems of capital depletion being faced by smaller
conventional vis-à-vis Takaful firms in the country. Third, the regulatory constraints being
faced by the firms such as Saudization might be a factor impacting efficiency of insurance
companies in Saudi Arabia. The firms might be facing a slowdown in the productivity due
to a lack of experts in the area of business with an increase in administrative costs of firms.
Fourth, low levels of interest rates in 2014 and early 2015 seem to have restrained the return
BIJ Company name 2010 2011 2012 2013 2014 2015 Average
25,2
Al-Rajhi Company for Coop. Insurance 1.00 1.00 1.00 1.00 1.00 0.83 0.97
SABB Takaful 1.00 1.00 1.00 1.00 1.00 0.78 0.96
Saudi Arabian Cooperative Insurance Co. 1.00 1.00 1.00 1.00 1.00 0.76 0.96
Arabia Insurance Cooperative Company 1.00 0.93 1.00 1.00 1.00 0.82 0.96
Trade Union Cooperative Insurance Co. 0.93 1.00 1.00 1.00 1.00 0.76 0.95
686 The MedGulf 1.00 1.00 1.00 0.81 1.00 0.87 0.95
Allianz Saudi Fransi Company 0.89 1.00 1.00 1.00 1.00 0.75 0.94
Al-Ahlia Insurance Company 1.00 1.00 1.00 1.00 0.71 0.92 0.94
Salama Cooperative Insurance Co. 0.85 1.00 1.00 1.00 1.00 0.77 0.94
Bupa Arabia for Cooperative Insurance 0.92 0.68 0.98 1.00 1.00 1.00 0.93
Alahli Takaful Company 1.00 1.00 1.00 1.00 1.00 0.45 0.91
AXA Cooperative Insurance Company 1.00 1.00 0.74 0.93 0.94 0.76 0.90
The Company for Coop. Insurance (Tawuniya) 1.00 0.87 1.00 0.89 0.89 0.70 0.89
Sanad Insurance and Reinsurance Cooperative Company 0.92 0.70 0.71 1.00 1.00 1.00 0.89
United Cooperative Assurance Co. 1.00 0.89 0.82 0.84 0.83 0.88 0.88
Saudi United Cooperative Insurance Co. 0.39 0.74 1.00 1.00 1.00 1.00 0.85
Saudi Indian Company for Coop Ins. 0.71 0.77 0.66 1.00 0.92 1.00 0.84
Saudi Re for Cooperative Reinsurance Co. 1.00 1.00 1.00 0.58 0.57 0.80 0.83
Allied Cooperative Insurance Group 0.42 1.00 0.57 0.98 0.90 1.00 0.81
Malath Cooperative Insurance and Reinsurance Company 0.53 0.75 0.93 0.78 0.83 1.00 0.80
Solidarity Saudi Takaful Co. 0.61 0.51 1.00 0.96 0.52 1.00 0.77
Buruj Cooperative Insurance Company 0.44 0.51 0.99 0.89 1.00 0.76 0.77
Al Alamiya for Cooperative Insurance Co. 0.77 0.68 0.64 0.75 0.81 0.79 0.74
Gulf General Cooperative Insurance Co. 0.62 0.87 0.53 0.63 0.70 1.00 0.73
Wataniya Insurance Company 0.26 0.71 0.57 0.82 0.89 0.85 0.68
Al Sagr Co-operative Insurance Co. 0.43 0.85 0.77 0.68 0.75 0.59 0.68
Gulf Union Cooperative Insurance Co. 0.62 0.49 0.54 0.69 0.72 0.92 0.66
Arabian Shield Cooperative Insurance Co. 0.33 0.54 0.50 0.67 0.73 1.00 0.63
Ace Arabia Cooperative Insurance Co. 0.53 0.69 0.57 0.59 0.59 0.76 0.62
Table III. Amana Cooperative Insurance Co. 0.18 0.69 0.32 1.00 0.64 0.62 0.58
CRS technical Average (year-wise) 0.74 0.83 0.83 0.88 0.88 0.84 0.83
efficiency scores of SD 0.27 0.18 0.21 0.14 0.15 0.14 0.12
Saudi insurance Minimum 0.18 0.49 0.32 0.58 0.52 0.45 0.58
companies: 2010-2015 Maximum 1.00 1.00 1.00 1.00 1.00 1.00 0.97

on insurance investments leading to lower levels of efficiency by firms. Last but not the least
might be the predominant issue of economic slowdown of the economy resulting through
the lower oil prices in the world market which might have affected the performance of
insurance firms in the country both in terms of revenue generation and business expansion.
Given all this, the insurance firms need to control for the use of their financial capital and
general and administrative expenses to reach at the efficiency frontier. Simultaneously, the
firms need to control their contributions on net claims incurred by adopting the tight
underwriting standards. However, the CCR model does not distinguish among the efficient
firms, as to which of them are more efficient than the other. This limitation of the CCR model
is overcome by the super-efficiency model. A preliminary super-efficiency model was run for
all the 30 firms in each year which resulted in certain number of outliers. The outliers were
excluded from the analysis for each of the years and the model was re-run. Based on the
results of the re-run, efficiency scores of the super-efficient firms are shown in Table IV.
In terms of performance comparison, it can be seen that the average efficiency scores of
the most frequent super-efficient firms were recorded at 1.41 over the period 2010-2015. It is
notable to mention here that the top slots for super efficiency are taken over by smaller
firms, while the bigger firms[9] are laggards here rather than the leaders. This reflects that
No. DMU 2010 2011 2012 2013 2014 2015 Average Frequency
Performance
analysis of
1 A 1.19 1.05 1.12 1.26 1.17 1.16 5 Takaful
2 U 1.16 1.30 1.09 1.05 1.01 1.12 5
3 R 2.49 2.53 3.72 1.23 2.49 4
4 A1 1.73 1.97 1.20 1.13 1.51 4
5 G 1.41 1.36 2.03 1.17 1.49 4
6 D 1.67 1.35 1.42 1.25 1.42 4 687
7 S 1.63 1.17 1.04 1.81 1.41 4
8 Z 1.16 1.01 1.06 1.36 1.15 4
9 X 1.15 1.09 2.97 1.74 3
10 M 1.29 1.33 1.34 1.32 3
11 W 2.73 2.55 2.29 2.52 3
12 E 2.65 2.14 2.40 2
13 A2 1.01 1.96 1.49 2
14 T 1.10 1.01 1.06 2
15 C 1.02 1.04 1.03 2
16 N 1.02 1.01 1.02 2
17 F 2.36 2.36 1
18 I 1.77 1.77 1
19 K 1.49 1.49 1
20 Q 1.40 1.40 1
21 L 1.39 1.39 1
22 V 1.20 1.20 1 Table IV.
23 A3 1.07 1.07 1 Efficiency scores of
Average 1.52 super-efficient firms

the larger insurance firms need to augment their efficiency through more efficient utilization
of inputs. Companies like Arabia Insurance (A) and Saudi Arabian Insurance (U) emerge
five times as super-efficient firms during the period 2010-2015 followed by SABB Takaful
(R) and so on. These companies tend to operate in diversified areas of business like property
insurance, motor insurance, marine insurance, engineering insurance, general accidents
insurance, health insurance, protection and saving plans and life insurance. It seems that the
firms, even being small, are managing their business well in transforming their inputs into
outputs through multiple lines of insurance business.

5.2 Results on the MPI

The values of Malmquist productivity indices for each of the firms during the years
2010-2015 are reported in Table V. All these indices are relative to the preceding year.
For example, the results for the year 2011 are based on the data for the year 2010 and so on.
Looking at the year-wise average productivity performance of firms, it can be seen that the
productivity, on average, has improved overtime while the same has receded in the year 2015.
The recession in the productivity is surprising despite the enforcement of medical and
third-party liability insurance regulation by the government. This might be partially
associated with the less optimum underwriting practices and lack of proper actuarial-backed
pricing policies. Even though Saudi Central bank has issued regulations on these areas, the
effect of them is yet to be seen. In terms of average performance of individual firms, it can be
witnessed that only five of the firms could show a progress in their total factor productivity.
This group is led by one of the Takaful firms followed by four of the conventional insurers.
Unlike the performance on technical efficiency and the super-efficiency areas, the top
performer group does not include any of the big three firms in the market.
The average MPI scores for the years 2010-2015 are shown in Table VI in addition to
the catching-up as well as frontier-shift effects. In the context of Equation (1) above, the
BIJ No. Company name 2011 2012 2013 2014 2015 Average
25,2
1 Solidarity Saudi Takaful Co. 0.08 2.50 4.84 3.24 0.17 2.17
2 Amana Cooperative Insurance Co. 0.86 2.82 0.19 3.39 1.44 1.74
3 Ace Arabia cooperative Insurance Co. 1.04 0.91 1.15 0.80 2.32 1.24
4 Al-Ahlia Insurance Company 1.04 1.00 0.87 2.62 0.11 1.13
5 Saudi Re for Cooperative Reinsurance Company 1.72 0.57 1.85 1.05 0.30 1.10
688 6 Sanad Insurance and Reinsurance Cooperative Co. 1.58 0.83 0.35 1.18 1.02 0.99
7 Al Alamiya for Cooperative Insurance Company 1.32 0.67 1.50 0.90 0.17 0.91
8 Saudi Arabian Cooperative Insurance Company 0.84 1.48 0.86 0.93 0.36 0.89
9 Saudi Indian Company for Co-operative Insurance 1.51 1.18 0.56 0.93 0.16 0.87
10 Allianz Saudi Fransi Cooperative Insurance Co. 0.63 1.03 0.56 1.66 0.38 0.85
11 United Cooperative Assurance Co. 1.09 1.05 0.98 0.84 0.20 0.83
12 Gulf Union Cooperative Insurance Company 1.30 0.73 0.92 0.97 0.21 0.82
13 AXA Cooperative Insurance Company 1.15 1.15 0.77 0.70 0.31 0.82
14 The MedGulf 0.62 1.34 1.17 0.69 0.24 0.81
15 Wataniya Insurance Company 0.58 1.02 0.54 0.94 0.95 0.81
16 The Company for Cooperative Insurance (Tawuniya) 1.23 0.66 0.82 1.12 0.20 0.81
17 Arabia Insurance Cooperative Company 1.26 0.70 0.48 1.09 0.44 0.79
18 Bupa Arabia for Cooperative Insurance 0.72 0.69 0.63 0.88 1.02 0.79
19 Gulf General Cooperative Insurance Company 1.05 1.06 0.79 0.87 0.12 0.78
20 Al Sagr Co-operative Insurance Co. 0.70 0.79 1.12 0.85 0.40 0.77
21 Malath Cooperative Insurance and Reinsurance Co. 0.87 0.46 1.36 0.80 0.10 0.72
22 Arabian Shield Cooperative Insurance Company 0.74 0.83 0.80 0.93 0.14 0.69
23 Saudi United Cooperative Insurance Company 0.86 0.38 0.57 0.50 1.07 0.68
24 Salama Cooperative Insurance Co. 0.46 1.12 0.53 0.68 0.59 0.67
25 Buruj Cooperative Insurance Co. 0.70 0.47 1.04 0.83 0.27 0.66
Table V. Average 0.96 1.02 1.01 1.18 0.51 0.93
Year-wise Malmquist Maximum 1.72 2.82 4.84 3.39 2.32 2.17
productivity indices Maximum 0.08 0.38 0.19 0.50 0.10 0.66

Year
Indices 2011 2012 2013 2014 2015 Period average
Table VI.
Malmquist indices Catch-up 0.88 1.32 1.39 1.21 1.45 1.25
(annual averages) for Frontier-shift 1.41 0.84 0.88 0.99 0.41 0.91
the years 2010-2015 Malmquist index 0.96 1.02 1.01 1.18 0.51 0.93

MPI is composed of catching-up as well as frontier-shift components. The MPI scores will
not add up here as per Equation (4) as the numbers in each case are year-wise averages.
As can be seen from Table V, only five of the firms appear with a productivity
improvement on average during the years 2010-2015 where the leader is Solidarity
Takaful Company. For this firm, on average, both the catch-up and frontier-shift components
of productivity change have improved, followed only by the next two firms[10].
These companies range between small- and medium-sized firms in terms of assets
reflecting that small and medium firms are doing better compared to their larger counterparts
as performance of the big firms stands below average.
In terms of converting inputs into outputs, growth in average productivity appears to be
subsiding by 7 percent, on average, during the period 2010-2015. This is largely due to the
convergence of frontier shift even though the catching-up effect is reflecting a positive shift
in the efficiency frontier on average. The insurance companies succeeded in increasing their
productivity by 2 to 18 percent between the years 2012 and 2013-2014 most of which was
sponsored by the catching-up effect. Even though the catch-up effect went mounting till the Performance
year 2015, yet regress in frontier shift was large enough to offset effect of the former leading analysis of
to a decline in the productivity. Different factors might be at work for the variations across Takaful
efficiency and productivity.
First, the issuance of new regulations by SAMA on underwriting practices,
actuarial-backed pricing and solvency requirements during the years 2014 and 2015
where the insurance companies appear to be finding it difficult to cope up with these 689
requirements. Second, the inadequate pricing policies of the sector have led to huge
expenses by the companies through the underwriting losses. Third, most of the insurers do
not generate income from diversified sources rather rely on investment income or
unwinding claims to remain profitable and efficient. This reflects that the economies of
scope are not being availed by the firms in this sector.
The results on productivity growth for individual insurance firms revealed that
smaller firms (ranked in terms of assets) appeared as the most efficient with a
simultaneous increase in the productivity. This suggests that smaller firms demonstrate
superior efficiency and productivity patterns compared to their larger counterparts
alluding that the small firms are unable to take advantage of economies of scale. These
results are consistent with those by Rai (1996), Luhnen (2009) and Kader et al. (2009) but
contrary to those by Hussels and Ward (2006).

5.3 Determinants of efficiency

The estimated efficiency measures obtained through DEA are regressed in a second stage
against a set of variables that are perceived to be the determinants of technical efficiency
of insurance firms in Saudi Arabia. These variables are selected in the context of the
extant literature on technical efficiency of insurance firms, objectives of the paper and
insurance market dynamics. The use of Tobin regressions has been a common practice
to estimate such models; however, Simar and Wilson (1998) proposed the use of
bootstrap-truncated regressions to ascertain statistical properties of the DEA, being
considered as non-statistical in the nature. The approach helps to approximate the
distribution of efficiency scores through re-sampling and re-calculation. There exists a
possibility that the efficiency scores derived in the first stage tend to be correlated with the
independent variables in the second stage, making estimates as biased and inconsistent
(Efron, 1979). The use of bootstrapping helps to overcome this potential issue. Thus,
to estimate a bootstrapped regression, panel data for the years 2010-2015 are used for
30 insurance companies (6 years × 30 ¼ 180 observations) using the CRS technical
efficiency scores as dependent variable:

Technical efficiency ðTEÞ ¼ b0 þb1 MSþb2 Prof þb3 Capst þb4 Mode

The independent variables include market share (MS), constructed as a ratio of premium of
each firm to total premiums of the industry. In this context, it is assumed that efficiency
increases as the MS expands since the higher MS escalates revenues and brings down the
cost-income ratio (Hao and Chou, 2005). The profitability (Prof ) of insurance firms is
represented by return on equity (ROE) to test for the effects of profitability across efficiency.
A capital structure (Capst) variable is used to determine its influence on efficiency.
To ascertain if there is a difference across efficiency of Takaful or non-Takaful firms,
a dummy variable (mode) is used where 1 represents a Takaful firm and 0 otherwise.
The Stata program is used to run a bootstrapped regression with 1,000 replications and the
results are presented in Table VII.
The MS variable is positively significant reflecting that a higher MS leads to higher
efficiency and vice versa. These findings are consistent with those by Fenn et al. (2008) and
BIJ Ansah-Adu et al. (2012). The profitability (ROE) appears to be positively affecting the
25,2 technical efficiency of firms and the coefficient is significant too. This supports the findings
by Afza and Kausar (2012) for the non-life insurance firms. The capital structure (Capst)
variable has surfaced as negatively insignificant suggesting that the firms’ efficiency is
unrelated to capital structure of insurance firms in the KSA. Finally, there appears
no evidence on difference across efficiency of Takaful vis-à-vis non-Takaful firms.
690 This suggests that Takaful firms fail to take advantage of specialized product lines and the
economies of scope thereon. The model is a good fit as the Wald test supports the level of
significance of all explanatory variables and probability value of the test is 0.083, significant
at 10 percent level.

6. Policy implications and conclusions

The study stands as pioneer to provide a starting point on performance evaluation of
insurance firms in Saudi Arabia in terms of technical, super efficiency and productivity
analysis. Although the study covers single country analysis, yet being a population data
analysis, it is fully representative of insurance market dynamics in Saudi Arabia. It offers
useful policy implications both for policy makers and insurers in the GCC market in general
and Saudi Arabia in particular, on the following grounds.
First the larger insurance firms in the country need to strengthen their operations more
efficiently in order to take advantage of economies of scale and scope. Second, a possible
solution to the issue of inefficient market dynamics might lie in consolidation of the
market through mergers and acquisitions. However, this is a need for direct involvement
of regulators in the Kingdom so that the market remains competitive. Third, even
though the sector appears to have benefitted from compulsory insurance regulations for
expatriates and their families, yet there is still a need for efficiency and productivity
improvement. Fourth, Takaful firms need to adopt such measures that would help them to
take advantage of their specialized products toward efficiency vis-à-vis productivity
drive. This would enable them to fully avail economies of scope. Fifth, even though
insurance firms in the country tend to outperform their counterparts in the region in
terms of average efficiency scores with lower levels of dispersion, still the firms need to
improve their efficiency and productivity levels domestically. Finally, the insurance firms
need to improve on their efficiency and productivity levels by catching-up with the
best practices.
These implications are expected to assist toward improving and developing the
insurance sector as an efficient industry while utilizing their inputs optimally, since Saudi
Arabia stands as the largest economy among the GCC countries with a greater MS. Further
research could still be conducted at firm level, especially as the Takaful insurance industry
grows overtime, which is set to become a driving force in the country and the GCC region.
Likewise, with the advent of recent and emerging regulations in the sector, there stands a
need to evaluate impact of such regulations in the future.

Observed coefficient Bootstrap SE Z PW |z|

Constant 0.7451346 0.0378386 19.69 0.000

MS 12.471 5.834449 2.14 0.033
ROE 0.2334708 0.1377667 1.69 0.090
Table VII. Capst −0.0851865 0.0717903 −1.19 0.235
Results of the Mode −0.0366695 0.1204229 −0.30 0.761
truncated Log of likelihood 55.656579
bootstrapped Wald χ2 8.26
regression ProbW χ2 0.083
Notes Performance
1. A list of the companies is presented in Table AI. analysis of
2. To the best of author’s knowledge, the study by Al-Amri et al. (2012) provides an insight only on Takaful
the technical efficiency of insurance companies in the GCC where only four of the companies from
Saudi Arabia were analyzed.
3. These include Sanad and Weqaya.
4. General insurance includes vehicles, marine, aviation, energy, engineering, accident and property
691
insurance.
5. For more details on the DEA, see Cummins and Weiss (2013) and Akhtar (2010).
6. Because of the presence of imperfect market conditions, firms find it difficult to operate at optimal
scale (Coelli et al., 2005).
7. www.tadawul.com.sa/
8. A super-efficiency value of greater than 4 should be treated as an outlier (Zimková, 2015).
9. These include the Company for Cooperative Insurance (Tawuniya), Medgulf and Bupa Arabia for
Cooperative Insurance.
10. Complete results on catching-up and frontier shift are reflected in Tables AII and AIII.

References
Afza, T. and Kausar, M. (2012), “Financial reforms and efficiency in the insurance companies of
Pakistan”, African Journal of Business Management, Vol. 6 No. 30, pp. 8957-8963.
Akhtar, M.H. (2010), “Are Saudi banks productive and efficient?”, International Journal of Islamic and
Middle Eastern Finance and Management (IMEFM), Vol. 10 No. 2, pp. 95-112.
Al-Amri, K., Gattoufi, S. and Al-Muharrami, S. (2012), “Analyzing the technical efficiency of insurance
companies in GCC”, The Journal of Risk Finance, Vol. 13 No. 4, pp. 362-380.
Albilad Capital (2015), “Saudi insurance sector 2015”, available at: www.albilad-capital.com/En/
Research/Pages/CorporateResults.aspx (accessed August 1, 2016).
Ansah-Adu, K., Andoh, C. and Abor, J. (2012), “Evaluating the cost efficiency of insurance companies in
Ghana”, The Journal of Risk Finance, Vol. 13 No. 1, pp. 61-76.
Arqaam Capital (2016), “Saudi insurance sector to grow at 14% over next five years: Arqaam Capital”,
available at: www.arqaamcapital.com/english/media-centre/press-releases/press-/ (accessed
May 2, 2016).
Banker, R.D., Charness, A. and Cooper, W.W. (1984), “Some models for estimating technical and scale
inefficiencies in data envelopment analysis”, Management Science, Vol. 30 No. 9, pp. 1078-1092.
Barros, C.P., Milton, N. and Assaf, A. (2010), “Efficiency in the Greek insurance industry”, European
Journal of Operational Research, Vol. 205 No. 2, pp. 431-436.
Berger, A.N. and Humphrey, D.B. (1992), “Measurement and efficiency issues in commercial banking”,
in Griliches, Z. (Ed.), Output Measurement in the Service Sectors, University of Chicago Press,
Chicago, IL, pp. 245-300.
Charnes, A., Cooper, W. and Rhoades, E. (1978), “Measuring the efficiency of decision making units”,
European Journal of Operational Research, Vol. 2, pp. 429-444.
Charnes, A., Cooper, W.W. and Thrall, R.M. (1991), “A structure for classifying and characterizing
efficiencies and inefficiencies in DEA”, Journal of Productivity Analysis, Vol. 2 No. 3, pp. 197-237.
Coelli, T.J., Rao, P., O’Donnell, C.C. and Battese, G.E. (2005), An Introduction to Efficiency and
Productivity Analysis, Springer, New York, NY.
Cooper, W.W., Seiford, L.M. and Tone, K. (2000), “Data envelopment analysis: a comprehensive
text with models, references and DEA-Solver Software applications”, Kluwer Academic
Publishers, Boston.
BIJ Cummins, J.D. and Weiss, M.A. (2013), “Analyzing firm performance in the insurance industry using
25,2 frontier efficiency and productivity methods”, in Dionne, G. (Ed.), Handbook of Insurance
Economics, Kluwer Academic Publisher, Boston, MA, pp. 795-861.
Dyson, R.G., Allen, R., Camanho, A.S., Podimovski, V.V., Sarrico, C. and Shale, S. (2001), “Pitfalls and
protocols in DEA”, European Journal of Operational Research, Vol. 132 No. 2, pp. 245-259.
Efron, B. (1979), “Bootstrap methods: another look at the Jackknife”, Annals of Statistics, Vol. 7 No. 1,
pp. 1-26.
692
Fenn, P., Vencappa, D., Diacon, S., Klumpes, P. and O’Brien, C. (2008), “Market structure and the
efficiency of European insurance companies: a stochastic frontier analysis”, Journal of Banking
& Finance, Vol. 32 No. 1, pp. 86-100.
Hao, J.C. and Chou, L.Y. (2005), “The estimation of efficiency for life insurance industry: the case in
Taiwan”, Journal of Asian Economics, Vol. 16 No. 5, pp. 847-860.
Hussels, S. and Ward, D. (2006), “The impact of deregulation on the German and UK life insurance
markets: an analysis of efficiency and productivity between 1991-2002”, working paper,
Bradford University School of Management, Bradford.
Kader, H.A., Adams, M. and Hardwick, P. (2009), “The cost efficiency of Takaful insurance companies”,
Centre for Risk and Insurance Studies (CRIS), Nottingham University Business School, University
of Nottingham, Nottingham.
Khan, A. and Noreen, U. (2014), “Efficiency measure of insurance v/s Takaful firms using DEA
approach: a case of Pakistan”, Islamic Economic Studies, Vol. 22 No. 1, pp. 139-158.
Luhnen, M. (2009), “Determinants of efficiency and productivity in German property-liability
insurance: evidence for 1995-2006”, The Geneva Papers on Risk and Insurance. Issues and
Practice, Vol. 34 No. 3, pp. 483-505.
Rai, A. (1996), “Cost efficiency of international insurance firms”, Journal of Financial Services Research,
Vol. 10 No. 3, pp. 213-233.
Russell, R.R. (1990), “Continuity of measures of technical efficiency”, Journal of Economic Theory,
Vol. 51 No. 2, pp. 255-267.
Seiford, L.M. and Zhu, J. (1999), “Infeasibility of super efficiency data envelopment analysis models”,
Information Systems and Operational Research , Vol. 37 No. 2, pp. 174-187.
Simar, L. and Wilson, P. (1998), “Sensitivity analysis of efficiency scores: how to bootstrap in
non-parametric frontier models”, Management Science, Vol. 44 No. 1, pp. 49-61.
Simar, L. and Wilson, P.W. (2007), “Estimation and inference in two-stage, semi-parametric models of
production processes”, Journal of Econometrics, Vol. 136 No. 1, pp. 31-64.
Yao, S., Han, Z. and Feng, G. (2007), “On technical efficiency of China’s insurance industry after WTO
accession”, China Economic Review, Vol. 18 No. 1, pp. 66-86.
Zhu, J. (2001), “Super-efficiency and DEA sensitivity analysis”, European Journal of Operational
Research, Vol. 129 No. 2, pp. 443-455.
Zimková, E. (2015), “Technical efficiency and super-efficiency of the Insurance sector in Slovakia”,
Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Vol. 63 No. 6, pp. 2205-2211.

Further reading
Bikker, J.A. and Gorter, J. (2011), “Restructuring of the Dutch nonlife insurance industry: consolidation,
organizational form, and focus”, Journal of Risk and Insurance, Vol. 78 No. 1, pp. 163-184.
Bingzheng, C., Michael, R.P. and Joseph, Q. (2009), “Life-insurance efficiency in China: a comparison of
foreign and domestic firms”, China & World Economy, Vol. 17 No. 6, pp. 43-63.
Maddala (1983), Econometrics, McGraw-Hill Book Company, New York, NY.
Tadawul (2016), “Company list insurance”, available at: www.tadawul.com.sa/ (accessed August 5, 2015).
The National (2016), “Saudi insurance sector to outperform oil”, January 6, available at: www.
thenational.ae/business/economy (accessed February 6, 2014).
Appendix Performance
analysis of
No. DMUs Company name Takaful
1 A Ace Arabia Cooperative Insurance Company
2 B Al Alamiya for Cooperative Insurance Company
3 C Al Sagr Co-operative Insurance Co.
4 D Al-Ahlia Insurance Company
693
5 E Al-Rajhi Company for Cooperative Insurance (Takaful)
6 F Alahli Takaful Company (Takaful)
7 G Allianz Saudi Fransi Cooperative Insurance Company
8 H Allied Cooperative Insurance Group (Takaful)
9 I Amana Cooperative Insurance Co.
10 J Arabia Insurance Cooperative Company
11 K Arabian Shield Cooperative Insurance Company
12 L AXA Cooperative Insurance Company
13 M Bupa Arabia for Cooperative Insurance
14 N Buruj Cooperative Insurance Company
15 O Gulf General Cooperative Insurance Company
16 P Gulf Union Cooperative Insurance Company
17 Q Malath Cooperative Insurance and Reinsurance Company
18 R SABB Takaful (Takaful)
19 S Salama Cooperative Insurance Co. (Takaful)
20 T Sanad Insurance and Reinsurance Cooperative Company
21 U Saudi Arabian Cooperative Insurance Company
22 V Saudi Indian Company for Co-operative Insurance
23 W Saudi Re for Cooperative Reinsurance Company
24 X Saudi United Cooperative Insurance Company
25 Y Solidarity Saudi Takaful Co. (Takaful)
26 Z The Company for Cooperative Insurance (Tawuniya)
27 A1 The MedGulf Table AI.
28 A2 Trade Union Cooperative Insurance Company A list of insurance
29 A3 United Cooperative Assurance Co. companies for the
30 A4 Wataniya Insurance Company years 2010-2015
BIJ Catch-up 2011 2012 2013 2014 2015 Average
25,2
A 0.35 2.07 0.56 0.84 2.99 1.36
B 1.11 0.96 1.05 0.98 0.98 1.02
C 0.45 0.98 0.99 0.74 3.33 1.30
D 1.18 1.00 1.13 2.84 0.76 1.38
G 0.59 1.03 0.62 1.90 2.50 1.33
694 I 0.22 3.27 0.19 3.52 0.68 1.58
J 1.13 0.95 0.89 1.07 1.47 1.10
K 0.56 0.97 0.80 1.01 0.36 0.74
L 1.39 1.44 0.96 0.78 1.62 1.24
M 1.06 0.77 0.60 1.06 0.99 0.90
N 0.54 0.57 1.37 0.73 2.17 1.08
O 0.74 1.20 0.91 0.93 0.59 0.88
P 1.35 0.86 0.92 1.10 1.10 1.07
Q 0.78 0.59 1.67 0.92 0.43 0.88
S 0.43 1.39 1.12 0.57 3.64 1.43
T 1.28 1.03 0.57 1.10 1.01 1.00
U 0.90 1.19 1.04 1.03 2.10 1.25
V 0.88 1.25 0.46 0.91 0.91 0.88
W 2.81 0.44 4.67 1.12 0.99 2.01
X 0.68 0.43 1.06 0.37 2.97 1.10
Y 0.02 5.50 8.71 2.78 0.37 3.47
Z 1.13 0.97 1.44 1.14 0.47 1.03
A1 0.75 1.91 1.62 0.65 1.75 1.34
A3 1.29 1.21 0.89 0.98 1.08 1.09
A4 0.40 1.07 0.57 1.08 1.06 0.84
Average 0.88 1.32 1.39 1.21 1.45 1.25
Table AII. Maximum 2.81 5.50 8.71 3.52 3.64 3.47
Year-wise catching-up Maximum 0.02 0.43 0.19 0.37 0.36 0.74
effects SD 0.55 1.05 1.73 0.75 0.98 0.54
Frontier-shift 2011 2012 2013 2014 2015 Average
Performance
analysis of
A 2.98 0.44 2.06 0.95 0.78 1.44 Takaful
B 1.19 0.70 1.43 0.92 0.17 0.88
C 1.54 0.80 1.14 1.14 0.12 0.95
D 0.88 1.00 0.77 0.92 0.14 0.74
G 1.07 1.00 0.91 0.87 0.15 0.80
I 3.91 0.86 0.96 0.96 2.10 1.76 695
J 1.12 0.74 0.54 1.01 0.30 0.74
K 1.31 0.86 0.99 0.92 0.38 0.89
L 0.83 0.80 0.81 0.90 0.19 0.70
M 0.68 0.90 1.05 0.83 1.03 0.90
N 1.29 0.82 0.76 1.14 0.12 0.83
O 1.43 0.88 0.86 0.94 0.20 0.86
P 0.96 0.84 0.99 0.88 0.19 0.77
Q 1.13 0.77 0.82 0.87 0.24 0.76
S 1.08 0.80 0.47 1.18 0.16 0.74
T 1.24 0.81 0.62 1.08 1.00 0.95
U 0.94 1.24 0.82 0.90 0.17 0.82
V 1.71 0.94 1.22 1.03 0.17 1.02
W 0.61 1.30 0.40 0.94 0.30 0.71
X 1.27 0.87 0.54 1.37 0.36 0.88
Y 3.89 0.45 0.56 1.16 0.45 1.30
Z 1.09 0.68 0.57 0.99 0.41 0.75
A1 0.82 0.70 0.72 1.05 0.14 0.69
A3 0.84 0.87 1.10 0.86 0.18 0.77
A4 1.45 0.96 0.95 0.87 0.89 1.02
Average 1.41 0.84 0.88 0.99 0.41 0.91
Maximum 3.91 1.30 2.06 1.37 2.10 1.76 Table AIII.
Maximum 0.61 0.44 0.40 0.83 0.12 0.69 Year-wise frontier-
SD 0.88 0.19 0.35 0.13 0.45 0.25 shift effects

Corresponding author
Muhammad Hanif Akhtar can be contacted at: haneefakhtar@gmail.com

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com