REINSURANCE AND FIRM PERFORMANCE IN THE U.S. PROPERTY-LIABILITY INSURANCE INDUSTRY
AdvisorCummins, J. David
Committee memberWeiss, Mary A.
Mao, Connie X.
DepartmentBusiness Administration/Risk Management and Insurance
Reinsurance Counterparty Relationships
Permanent link to this recordhttp://hdl.handle.net/20.500.12613/1205
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AbstractThis dissertation investigates the relationships between reinsurance activities and primary insurers' financial performance in U.S. property-liability insurance market from several perspectives. The first essay investigates the relationship between ceding insurer performance and the affiliation, domicile, and authorization of its counterparties. Specifically, we provide empirical evidence that ceding insurer financial performance is positively related to the use of affiliated reinsurance, the use of foreign reinsurance, and the use of affiliated reinsurance that is ceded to the low-tax, lightly-regulated domiciled counterparties; and negatively related to the use of unauthorized reinsurance. These results are consistent with the cost of information asymmetry theory. The second essay investigates reinsurance counterparty relationships in U.S. property-liability insurance. Firm-specific characteristics determinants of counterparty relationships are examined. We also analyze the relationship between firm performance and reinsurance counterparty relationships. We find that concentration in reinsurance counterparties, especially in unaffiliated counterparties, is adversely related to insurer performance due to higher information asymmetry. On the other hand, relationship with foreign counterparties is positive related to performance, suggesting the foreign reinsurers may have a favorable position in terms of tax treatment, specialized service, among other factors.
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Essays on Shadow InsuranceWeiss, Mary A.; Cummins, J. David; Chen, Hua; Mao, Connie X. (Temple University. Libraries, 2019)This dissertation discovers an important development in the life reinsurance market and investigates two problems behind the rapid growth of shadow insurance -- the motivation of shadow insurance activities and the underlying risks. The first part investigates why U.S. life insurance groups use shadow insurance, i.e., reinsure their risks using affiliated, unauthorized, and unrated off-balance-sheet entities rather than traditional reinsurers, and how such activities are allocated to individual group members. We find that regulatory arbitrage through shadow insurance activities is motivated by a large deviation from an insurance group's optimal capital structure and is primarily exercised by larger groups with relatively lower capital adequacy. Rather than smoothing capitalization across firms using affiliated reinsurers' capacity, insurance groups allocate the amount of shadow insurance to only a few highly leveraged, less capitalized, and larger life insurers within the group. The se
Reinsurance counterparty analysis in life insurance industry: the impact on firm performance/mergers and acquisitions in global insurance industryWeiss, Mary A.; Cummins, J. David; Chen, Hua; Mao, Connie X. (Temple University. Libraries, 2016)The first part of the dissertation aims to determine whether and how variances in reinsurance relationships impact insurers' financial performance during the sample period of 2002-2012. Such impact on insurers' financial performance is measured by accounting measurements of ROA and ROE and by the efficiency scores (cost, revenue, and profit) estimated using data envelopment analysis (DEA). This essay analyzes how the usage of captive reinsurance affects life insurers’ firm performance using multivariate regression model. Results show that firm performance is negatively related to captive reinsurance arrangements. The second essay analyzes the value effects of mergers and acquisitions (M&As) in the global insurance industry by conducting an event study of M&A transactions that occurred during the period of 1990-2014, including two M&A waves before the financial crisis and the M&A activities after it. Our results show that (1) M&As are value-enhancing for both acquirers and targets over the whole sample period; (2) for acquirers, within-border transactions are more likely to be value-enhancing, while for targets, both cross-border and within-border transactions are value-enhancing; and (3) for acquirers, the cross-industry M&As are more likely to be value-enhancing, while for targets both cross- and within- border M&As are value-enhancing.
ESSAYS IN THE ECONOMICS OF U.S. PROPERTY-LIABILITY INSURANCE INDUSTRYWeiss, Mary A.; Cummins, J. David; Shi, Tianxiang; Mao, Connie X. (Temple University. Libraries, 2019)This dissertation consists of two topics. Chapter 1 examines the relationship between contingent commission use and underwriting performance as well as underwriting risk using data from 2005 to 2016. Top brokers were banned from receiving contingent commissions following the inquiry in 2004 led by Eliot Spitzer, former New York Attorney-General. But the ban raised concerns about whether it created a level playing field across the industry, as smaller brokers continued taking them. In addition, despite the possible conflicts of interest, contingent commissions have also been recognized as a way to better align agent and insurer incentives. Regulators agreed to relax the terms for the leading brokers in 2010, resulting in a less onerous compliance regime for contingent commission use. It is important to study the effectiveness of contingent commission use on improving underwriting performance. This study finds strong evidence supporting the hypothesis that contingent commissions’ usage is associated with better underwriting performance as well as lower underwriting risk. This study also finds a curvilinear relationship between underwriting performance and the level of contingent commission use. Chapter 2 investigates the impact of executive overconfidence on capital structure decisions and reinsurance purchases using a sample of 37 publicly-traded property-liability insurance groups for the period 2002 to 2016. This study finds that insurance firms with overconfident executives have significantly higher leverage ratios than those without overconfident executives. This study also finds evidence that insurance firms with overconfident executives cede more reinsurance, and this evidence is stronger for insurers with more limited business capacity than those with ample business capacity. The results of this study also indicate that overconfident executives prefer internal reinsurance to external reinsurance. This research provides evidence that personality traits of executive impact capital structure decisions and reinsurance purchases for insurance firms, which should be of interest to policyholders and regulators.