Digital Transformation and Financial Soundness in Life Insurance Companies: Evidence from Text Mining

DOI: https://doi.org/10.62517/jbm.202609406

Author(s)

Xi Chen¹, Ruiqi Wang2,*

Affiliation(s)

1Qianhai Reinsurance Co., Ltd., Shenzhen, Guangdong, China 2Linfen Municipal Development and Reform Commission, Linfen, Shanxi, China *Corresponding Author

Abstract

This study examines whether digital transformation is associated with the financial soundness of life insurance companies. The sample covers Chinese life insurers from 2014 to 2023. A firm-year digital transformation index is constructed from corporate website disclosures using text clustering, Word2Vec embeddings, cosine similarity, and text mining. Financial soundness is measured by the Z-score and the three-year rolling standard deviation of return on assets. Estimates from firm and year fixed-effects models show that a higher lagged digital transformation index is associated with a higher Z-score and lower earnings volatility. The results remain stable when the dependent variable is replaced by the absolute change in the solvency adequacy ratio, the sample period is shortened, recently established and specialised insurers are excluded, and an instrumental-variable specification is used. The association is stronger among large insurers. Channel tests further indicate that digital transformation is linked to higher asset turnover and a larger share of insurance risk, which is consistent with improvements in operating efficiency and the protection-oriented nature of insurance business. These findings suggest that digital investment can support financial resilience, although its payoff depends on an insurer’s resources and implementation capacity.

Keywords

Digital Transformation; Financial Soundness; Text Mining; Life Insurance Companies; Two-Way Fixed Effects

References

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