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Journal ArticleDOI

The Impact of Firm Risk on Property-Liability Insurance Prices

David W. Sommer
- 01 Sep 1996 - 
- Vol. 63, Iss: 3, pp 501
TLDR
In this paper, the authors examined 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.
Abstract
This article 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. The measures of insolvency risk used are those implied by the option pricing model of insurance. The key finding is the existence of a negative relation between insolvency risk and insurance prices. This implies that property-liability insurers are penalized for default risk through lower prices, despite the existence of guaranty funds. Other firm-specific determinants of insurance prices are also identified. The results have significant implications for insurance researchers and regulators.

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Citations
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Journal ArticleDOI

The Property/Liability Insurance Cycle: A Comparison of Alternative Models

TL;DR: In this article, the authors compare alternative models of insurance pricing as theories of the property-liability underwriting cycle and find that the actuarial model and the capacity constraint hypothesis are the only theoretical models that are consistent with the data.
Journal ArticleDOI

Institutional Ownership Stability and Risk Taking: Evidence From the Life–Health Insurance Industry

TL;DR: In this paper, the authors investigated the relationship between risk taking of life-health insurers and stability of their institutional ownership within a simultaneous equation system model and found that stable institutional ownership is associated with lower total risk of insurers.
Journal ArticleDOI

Keeping up with the Joneses: Changing Rating Standards and the Buildup of Capital by U.S. Property-Liability Insurers

TL;DR: Pressure for insurers to maintain their existing ratings provides a plausible explanation of the dramatic buildup of capital in the industry during the 1990s and suggests Best's raised the bar in terms of the capital required to maintain the highest ratings differentially relative to the increase in standards they required for lower rated categories.
Journal ArticleDOI

Managing Annual Accounting Reports to Avoid State Taxes: An Analysis of Property-Casualty Insurers

TL;DR: In this paper, the authors investigate whether insurers allocate premiums from multistate policies to reduce total state taxes and find that the negative relation is greatest for insurers specializing in multi-state lines of business.
Journal ArticleDOI

Insurance Company Failures: Why Do They Cost so Much?

TL;DR: In this paper, the authors examined the cost of insolvency resolution and the factors driving these costs, and found that firms in relatively better shape before being seized impose lower costs on the system and that non-benevolent behavior by regulators contributes significantly to the resulting costs.
References
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Journal ArticleDOI

Elements of Econometrics.

TL;DR: The Elements of Econometrics as mentioned in this paper is a textbook for upper-level undergraduate and master's degree courses and may usefully serve as a supplement for traditional Ph.D. courses in economics.
Book

Elements of econometrics

Jan Kmenta
TL;DR: The emphasis is on simplification whenever possible, assuming the readers know college algebra and basic calculus, and Jan Kmenta explains all methods within the simplest framework, and generalizations are presented as logical extensions of simple cases.
Journal ArticleDOI

Contractual Provisions, Organizational Structure, and Conflict Control in Insurance Markets

TL;DR: In this article, the authors provide a foundation for a positive theory of insurance contracting with examples of its testable predictions and argue that incentive conflicts arise when discretionary action is authorized and that contractual provisions and organizational structures control sources of conflict within the insurance market.
Journal ArticleDOI

Price, Financial Quality, and Capital Flows in Insurance Markets

TL;DR: In this article, the authors developed a model of price determination in insurance markets, which predicts that the price of insurance, measured by the ratio of premiums to discounted losses, is inversely related to insurer default risk.
Journal ArticleDOI

Stock Versus Mutual Ownership Structures: The Risk Implications

TL;DR: In this paper, the authors provide empirical tests of the risk differences between two types of ownership structure in the property-liability insurance industry and provide empirical evidence that suggests stock insurers have more risk than mutuals where the risk inherent in future cash flows is proxied by the variance of the loss ratio.
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