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Insurance Industry (insurance + industry)
Selected AbstractsStress Testing of Financial Industries: A Simple New Approach to Joint Stress Testing of Korean Banking, Securities, and Non-Life Insurance Industries,ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 4 2009Kook-Hyun Chang Abstract This paper proposes a simple joint stress testing model useful in studying the effects of specific stress scenarios on a financial sector. In doing so, we adopt the principal component analysis (PCA) as a main device to interpret various financial information contained in figures and numbers on a financial company. We repeat the principal component analysis across different levels from individual company to a financial industry, and eventually to a financial sector as a whole to derive a financial sector risk index. We then link the sector risk index with stress macro variables, which constitute a much simpler task than devising individual models for each financial components. Once a relationship is established, a joint stress test is conducted by repeating PCA conversely. As a sample of stress scenario in the paper, we use the case of the 2003 credit card distress. We find that securities industry is more sensitive to market stresses than two other industries-bank and insurance-and that financial institutions in such a stress-sensitive industry are, consequently, more affected by the stresses than those in other industries. Despite the simplicity of the proposed model, this model is expected to provide substantial information, particularly for financial supervisors without having to build a complicated joint stress testing model. [source] The Association between External Monitoring and Earnings Management in the Property-Casualty Insurance IndustryJOURNAL OF ACCOUNTING RESEARCH, Issue 2 2001Jennifer J. Gaver This paper examines the association between external monitoring and earnings management by property-casualty insurers. We extend previous work by Petroni and Beasley (1996) by expanding the set of external monitors to include both auditors and actuaries. We investigate whether certain auditor-actuary pairs are associated with less understatement of the loss reserve account by financially struggling insurers. Our data consist of loss adjustments reported by 465 property-casualty insurers for reserves established in 1993. The results indicate that under-reserving by weak insurers is essentially eliminated when the firm uses auditors and actuaries that are both from Big Six accounting firms. In contrast, non-Big Six actuaries have less impact on under-reserving by weak insurers. Our results suggest that the quality usually associated with Big Six auditors falls when the audit firm relies on third party actuaries to evaluate the loss reserve estimates of struggling insurance clients. We conjecture that Big Six actuaries insist on more conservative loss reserve levels because, compared to actuarial consulting firms, they are more attuned to the liability exposure of the auditor. [source] Compensation and Board Structure: Evidence From the Insurance IndustryJOURNAL OF RISK AND INSURANCE, Issue 2 2010David Mayers Monitoring by outside board members and incentive compensation provisions in executive pay packages are alternative mechanisms for controlling incentive problems between owners and managers. The control hypothesis suggests that if incentive conflicts vary materially, those firms with more outside directors also should implement a higher degree of pay-for-performance sensitivity. Our evidence is consistent with this control hypothesis. We document a relation between board structure and the extent to which executive compensation is tied to performance in mutuals: compensation changes are significantly more sensitive to changes in return on assets when the fraction of outsiders on the board is high. [source] An Investigation Into the Diversification,Performance Relationship in the U.S. Property,Liability Insurance IndustryJOURNAL OF RISK AND INSURANCE, Issue 3 2008B. Elango This article investigates the relationship between product diversification and firm performance in the U.S. property,liability insurance industry using data over the 1994 through 2002 time period. Using various measures of product diversification and firm performance, we find that the extent of product diversification shares a complex and nonlinear relationship with firm performance. Our findings suggest that performance benefits associated with product diversification are contingent upon an insurer's degree of geographic diversification. Robustness tests using subsamples and market returns for public firms show consistent results. [source] Ownership Structure Changes in the Insurance Industry: An Analysis of DemutualizationJOURNAL OF RISK AND INSURANCE, Issue 3 2003Krupa S. Viswanathan This article focuses on the demutualization process and investigates why certain mutuals undergo this organizational structure change. The primary motivation for conversion is access to capital. By statute, mutual firms are limited in their capital-raising activities while stock firms can attract funds through a variety of stock and debt offerings. By examining the financial characteristics of firms that demutualize, changes in business practices in the years surrounding conversion can be observed. Determinants of the conversion decision are explored through logistic regression. In the years before demutualization, converting property-liability mutuals exhibit significantly lower surplus-to-asset ratios. This capital constraint eases after demutualization. Converting life-health mutuals hold a significantly lower proportion of liquid assets; in addition, they have a higher proportion of separate accounts under management. This liquidity constraint and increased focus on a higher managerial discretion activity drive the demutualization decision. For both property-liability and life-health converting mutuals, support for the access to capital hypothesis is found. [source] Rejoinder to Racial Profiling, Insurance Style: A Spirited Defense of the Insurance IndustryJOURNAL OF URBAN AFFAIRS, Issue 4 2003Todd C. Pittman First page of article [source] The Premium,Dividend Competition in the Prewar Japanese Life Insurance Industry: A Game-Theoretic InterpretationTHE JAPANESE ECONOMIC REVIEW, Issue 4 2000Yoshiro Tsutsui Between 1917 and 1935, Japanese life insurance companies competed with each other on a premium,dividend basis. We propose that such competition took the form of product differentiation, exploiting differences in discount rates or price expectations among policy-holders. Our model shows that under some conditions the introduction of such competition can be beneficial to the competitive companies. It is shown that these conditions were satisfied at that time, and that more detailed factors are also consistent with the model. JEL Classification Numbers: C72, D43, G22, N25. [source] Evidence on Value Creation in the Financial Services Industries through the Use of Joint Ventures and Strategic AlliancesFINANCIAL REVIEW, Issue 2 2003Kimberly C. Gleason G21/G29/G14 Abstract While an extensive body of literature has examined merger, acquisition, and consolidation activity in commercial banks and other financial services firms, little attention has been paid to examining how these institutions use the cooperative activities of joint ventures and strategic alliances to accomplish their growth objectives. We analyze the effects of the use of joint ventures and strategic alliances by a sample of firms in the banking, investment services, and insurance industries. Our results show that commercial banks, investment services firms, and insurance companies experience significant abnormal returns of 0.66% on average when they announce their participation in a joint venture or strategic alliance. These abnormal returns are significantly positive across the four strategic motives of domestic, international, horizontal, and diversifying cooperative activities. Using a matched sample, we also show that our sample firms enjoy significant, positive, abnormal returns for holding periods of six, 12, and 18 months after the announcement of the cooperative activity. [source] Wege zur Versicherung des TerrorrisikosPERSPEKTIVEN DER WIRTSCHAFTSPOLITIK, Issue 4 2005Bruno Gas In the aftermath of September 11, 2001 co-operation between governments and the national insurance industries has often been necessary to ensure an adequate supply of insurance coverage. Therefore the article justifies this co-operation as an exception to general economic principles. Furthermore, the article presents an insight on the construction of the German terrorism insurer Extremus. It discusses the characteristic elements and distinguishes Extremus from solutions in other countries. Finally, the article argues that in the future alternative risk transfer will not be a real replacement for terrorism insurance and that international co-operation of governments to establish a world-wide terrorism cover will be extremely difficult. [source] The Economics of Organization Structure Changes: a US perspective on demutualizationANNALS OF PUBLIC AND COOPERATIVE ECONOMICS, Issue 4 2004Fabio R. Chaddad We document waves of demutualization and review the empirical literature examining the economics of organizational structure changes that have occurred in the US savings and loan and insurance industries since the 1980s. Based on the review of the literature on the economics of conversions, we generate a set of general observations that might inform private and public policy perspectives on the future role of user owned and controlled organizations in market economies. In doing so, the paper may serve as a platform for further discussion among scholars, policymakers, practitioners, and cooperative leaders in their quest to understand and affect the ongoing process of demutualization. [source] Clustering technique for risk classification and prediction of claim costs in the automobile insurance industryINTELLIGENT SYSTEMS IN ACCOUNTING, FINANCE & MANAGEMENT, Issue 1 2001Ai Cheo Yeo This paper considers the problem of predicting claim costs in the automobile insurance industry. The first stage involves classifying policy holders according to their perceived risk, followed by modelling the claim costs within each risk group. Two methods are compared for the risk classification stage: a data-driven approach based on hierarchical clustering, and a previously published heuristic method that groups policy holders according to pre-defined factors. Regression is used to model the expected claim costs within a risk group. A case study is presented utilizing real data, and both risk classification methods are compared according to a variety of accuracy measures. The results of the case study show the benefits of employing a data-driven approach. © 2001 John Wiley & Sons, Ltd. [source] An Investigation Into the Diversification,Performance Relationship in the U.S. Property,Liability Insurance IndustryJOURNAL OF RISK AND INSURANCE, Issue 3 2008B. Elango This article investigates the relationship between product diversification and firm performance in the U.S. property,liability insurance industry using data over the 1994 through 2002 time period. Using various measures of product diversification and firm performance, we find that the extent of product diversification shares a complex and nonlinear relationship with firm performance. Our findings suggest that performance benefits associated with product diversification are contingent upon an insurer's degree of geographic diversification. Robustness tests using subsamples and market returns for public firms show consistent results. [source] Catastrophic Losses and Insurer Profitability: Evidence From 9/11JOURNAL OF RISK AND INSURANCE, Issue 1 2008Xuanjuan Chen We examine the effects of 9/11 on the insurance industry, hypothesizing a short-run claim effect, resulting from insufficient premium ex ante for catastrophic losses, and a long-run growth effect, resulting from ex post insurance supply reductions and risk updating. Following Yoon and Starks (1995) we use short- and long-run abnormal forecast revisions to measure both effects, analyzing them as a function of firm-specific characteristics. We find that firm type, loss estimates, reinsurance use, and tax position are important determinants of the short-run position. Firm type, loss estimates, financial strength, underwriting risk, and reinsurance are key determinants of the firm's long-run position. [source] Racial Profiling, Insurance Style: Insurance Redlining and the Uneven Development of Metropolitan AreasJOURNAL OF URBAN AFFAIRS, Issue 4 2003Gregory D. Squires This article examines the role of racial profiling in the property insurance industry and how such practices, grounded in negative racial stereotyping, have contributed to racial segregation and uneven metropolitan development. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of this industry. Due to limitations in publicly available data, it is difficult to assess precisely the extent to which race shapes industry practices. Research and public policy initiatives are explored that can ameliorate the data problems, increase access to insurance, and foster more equitable community development. [source] Third-Party Policing and Insurance: The Case of Market-Based Crime PreventionLAW & POLICY, Issue 1 2000Sharyn Roach Anleu This paper examines a relatively new trend: market-based crime prevention. The insurance firm is an exemplary agent of this new type of crime prevention. Although the traditional focus of insurance has been on losses sustained after a crime or other catastrophe, we explore the shift from reactive to proactive crime management by the insurance industry. This trend is part of a more general decentralization of policing, from state-controlled agents to community- and market-based third parties. New ideologies support these shifts, including an actuarial logic about crime and a view of the prudent person. [source] A Critique of the Private Health Insurance RegulationsTHE AUSTRALIAN ECONOMIC REVIEW, Issue 3 2004Rhema Vaithianathan The private health insurance sector is one of the most regulated sectors in Australia. The Private Health Insurance Incentives Scheme, along with community rating, is intended to make private insurance equitable, profitable and popular. We argue that the subsidy to health insurance ought to be a very effective tool for increasing insurance,but it was ineffective because community rating was ineffective. Using data from the Household Expenditure Survey we find that despite community rating rules which prohibit age-adjusted premiums, young adults paid considerably less for their insurance than older adults. We conclude that insurers circumvented community rating through plan design, screening older consumers into more expensive plans. We also find that the penalty of 2 per cent per year for delaying insurance, introduced as part of the lifetime cover plan, is too low to be effective. We reflect on the New Zealand experience, where a completely deregulated insurance industry continues to be profitable and enjoys similar rates of coverage to those of Australia, and we ask whether Australia too could not benefit from complete deregulation. [source] | ||||||||||||||||||||||