Search

This article analyzes variations in line-of-business diversification status and extent among property-liability insurers. Our results show that the extent of diversification is not driven by risk pooling considerations; insurers operating in more volatile business lines do not diversify more. Diversification can rather be explained by the benefits of internal capital markets and barriers to business growth like market size and concentration. In our analysis, we distinguish between related and unrelated diversification. Using a measure of unrelated line-of-business diversification we find the first support for the diversification prediction of the managerial discretion hypothesis that mutual insurers should be less diversified than stock insurers. While mutual insurers tend to exhibit higher levels of total diversification, they engage in significantly less unrelated diversification than do stock insurers. [ABSTRACT FROM AUTHOR]

Unlike studies that estimate managerial bias, we utilize a direct measure of managerial bias in the U.S. insurance industry to investigate the effects of executive compensation and corporate governance on firms' earnings management behaviors. We find managers receiving larger bonuses and stock awards tend to make reserving decisions that serve to decrease firm earnings. Moreover, we examine the monitoring effect of corporate board structures in mitigating managers' reserve manipulation practices. We find managers are more likely to manipulate reserves in the presence of particular board structures. Similar results are not found when we employ traditional estimated measures of managerial bias. [ABSTRACT FROM AUTHOR]

Insurers are formally and informally monitored by a variety of stakeholders, including reinsurers, agents, outside board members, and regulators. While other studies have generally examined these stakeholders separately, they have not accounted for the fact that there is some relation among the stakeholder groups, and the presence of these groups is likely to be jointly determined. By empirically controlling for these potential interrelations, we create a more complete assessment of the impact of these stakeholders/monitors on insurers' risk taking. Specifically, we find that the presence of some stakeholders offsets the degree or presence of others, and that most stakeholders/monitors are associated with a reduction of overall firm risk. [ABSTRACT FROM AUTHOR]

This article examines the impact of ownership structure on the relation between firm performance and chief executive officer (CEO) turnover in the U.S. property-liability insurance industry. Theoretical implications of stock versus mutual ownership structures on the performance-turnover relation are ambiguous. Our empirical results indicate that CEO turnover is less responsive to firm underwriting performance in mutual insurers compared to stock insurers. In fact, we find that while CEO turnover for stock firms is negatively related to prior performance, no such relationship is found for mutual insurers. These results hold while controlling for board structure and other relevant factors. [ABSTRACT FROM AUTHOR]

Chief executive officer (CEO) turnover has long been an important topic in the academic literature. Previous research has focused mostly on the rationale for CEO turnovers, or circumstances that lead to CEO changes, with much less attention paid to how CEO turnovers affect future firm performance. We extend the literature regarding the impact of CEO turnover on performance using data for U.S. property-liability insurers. Measuring firm performance with cost efficiency (CE) and revenue efficiency (RE) scores, we find strong support for the hypothesis that firms with a CEO turnover, especially those with a nonroutine turnover, experience more favorable performance changes than firms without a CEO turnover. [ABSTRACT FROM AUTHOR]

This article investigates the implications of separation of ownership and control for board composition over a spectrum of ownership structures present in the U.S. property–liability insurance industry. We hypothesize that agency costs associated with manager–owner conflicts increase with the degree of separation of ownership and control. Greater agency costs imply a greater need for monitoring by outside directors on the board. Therefore, use of outside directors is expected to increase as the separation of ownership and control gets larger. Employing a sample of property–liability insurers exhibiting different degrees of separation of ownership and control, we find support for our hypothesis. [ABSTRACT FROM AUTHOR]

The bibliographies of 17 risk journals were evaluated to determine the relative influence of these risk journals on risk, insurance, and actuarial research published during the years 2001 through 2005. Tables are provided that show the frequency with which each of these journals cites itself and the other sample journals. The journals are ranked, within two groups (risk and insurance group and actuarial group), based on their total influence (total citations including and excluding self-citations) and their per article influence (per article citations including and excluding self-citations). Finally, the most frequently cited articles from each risk journal are reported. [ABSTRACT FROM AUTHOR]

We exploit the transparency of internal capital markets (ICMs) within insurance groups to investigate the activity and efficiency of ICMs within insurance groups. Specifically, we compare the relationship between internal capital transfers and investment to that between capital from other sources and investment. The ability to track the actual ICM transactions allows for more direct analysis of ICM activity than most previous studies. Consistent with theory, we find evidence that ICMs play a significant role in the investment behavior of affiliated insurers. We then use these detailed data to execute a more direct test of ICM efficiency than currently exists in the literature. Consistent with ICM efficiency, results suggest that capital is allocated to subsidiaries with the best expected performance. [ABSTRACT FROM AUTHOR]

Regulators, investors, consumers, and insurance brokers use insurer financial strength ratings to evaluate the insolvency risk of insurers. This article investigates the factors influencing the decision to obtain a rating or multiple ratings, the determinants of ratings for the three major insurer rating agencies, and reasons for differences in ratings across agencies. This study indicates that insurers obtain ratings to reduce ex ante uncertainty about insolvency risk. It also provides evidence that specific rating determinants and their weights differ across agencies. Evidence of sample selection bias is found only in relation to Best's ratings. [ABSTRACT FROM AUTHOR]

This study provides evidence regarding the risk-subsidy and monitoring hypotheses by investigating the relation between insider ownership and risk-taking in the property-liability insurance industry. The structure of guaranty funds provides incentives for owners to encourage insurer risk-taking. However, the ex post funding mechanism and incompleteness of guaranty funds may create monitoring incentives that inhibit risk-taking. Moreover, the extent to which managers engage in risk-taking may depend on how well their interests are aligned with those of the owners. The empirical results provide support for the risk-subsidy hypothesis and demonstrate the essential link between insider ownership and risk-taking. [ABSTRACT FROM AUTHOR]

This study investigates the differences in cash holdings across property-liability insurers. We conclude that relative cash holdings are less for insurers with better access to cash through capital markets and/or other group members. We also conclude that larger insurers, higher quality insurers, insurers that write longer tail lines of business, and firms with higher degrees of leverage hold less cash. Also, we find that insurers with a higher variance of cash flows tend to hold more cash. Another interesting finding is that, contrary to what managerial discretion arguments might suggest, stock insurers tend to hold more cash than do mutuals. [ABSTRACT FROM AUTHOR]

This article examines the regulatory stringency in insurance and the probability of being licensed in New York state. The state of New York is generally acknowledged to have the most rigorous insurance regulatory scheme of any jurisdiction in the U.S. Besides general stringency, a unique feature of New York insurance law is its extraterritoriality; an insurer licensed to do business in New York must substantially comply with any requirement applicable to similar domestic insurers in every state in which the insurer does business. The impact of New York regulation on the life insurance industry is potentially far reaching considering that over fifty-eight percent of life insurer assets in 1995 were held by New York licensed life insurers. As a consequence of the apparent unique importance of New York regulation, many empirical researchers have attempted to control for the impact of such regulation in studies of various insurance issues, typically by including a binary variable signifying whether an insurer is licensed in New York.

Analyzes the ownership structures in the life-health insurance industry. Examination of operational, financial, and institutional determinants of ownership structures; Testing of hypotheses regarding the owner-manager and the owner-policyholder incentive conflicts; Differences between the activity choices of stock life insurers and mutual life insurers.

Examines the impact of an insurer's level of insolvency risk on the prices the insurer obtains for its products in the property-liability insurance market. Use of measures of insolvency risk for those implied by option pricing model of insurance; Relation between insolvency risk and insurance prices; Penalty of insurers for default risk; Identification of firm-specific determinants of insurance prices.