General Insurer Efficiency and Managerial Ability: A Non-Parametric Approach

While it is well known that managerial ability (MA) plays an important role in the performance of business enterprises, such efforts are not directly observable. Following Demerjian et al. (2012), the current research study estimates MA in the context of the Indian general insur-ance sector. The study is based on 120 firm-year observations spread over six years (from 2012–2013 to 2017–2018) and includes 16 private sector general insurers as well as four public sector insurers with diversified businesses. To measure MA, we estimated insurer-wise efficiency using data envelopment analysis and then regressed the efficiency scores on a set of contextual variables which influence insurer performance. In the next stage, we estimated MA from regression residuals (the difference between the observed and fitted values of insurer efficiency). Further, we have used this measure of MA as an independent variable to explain return on equity on the basis of ordinary least squares and general additive model regression, and the relationship is highly significant.