The Empirical Analysis of Organizational Forms of U.S. Property-Liability Insurance Industry
Date Issued
2009
Date
2009
Author(s)
Chang, Young-Lang
Abstract
In general, there are four types of organizational forms in the property liability insurance industry which are as follows: stock, mutual, reciprocal, and Lloyds. Organizational forms choice of insurers is driven by the differential relative advantages for themselves under its different conditions. Two essays are discussed in this dissertation: (1) Essay 1 we discuss the demutualization and demand for reinsurance for U.S. Property-Liability insurance industry. (2) Essay 2 we discuss the relationship between organizational forms and distribution channels for U.S. Property-Liability insurance industry. Essay I investigates whether U.S. property-liability insurers change their demand for reinsurance after demutualization. We find that converting insurers decrease the demand for reinsurance from non-affiliated reinsurers, but increase the demand for reinsurance from affiliated reinsurers after the conversion. One possible explanation is that converting insurers may treat reinsurance to affiliated reinsurers as risk retention rather than risk transfer so that they can reduce reinsurance cost. Our empirical results show that the overall demand for reinsurance of converting insurers is not statistically different after the conversion. One other interesting finding is that converting insurers increase demand for reinsurance from non-affiliated reinsurers before conversion. Essay II examines how do property liability insurance companies choose their organizational form and distribution channel? Prior studies have not yet provided a consistent conclusion. In this paper, we propose a reduced form approach to reexamine the relationship between organizational forms and distribution channels in the insurance industry, using cross-sectional data pertaining to U.S. property liability insurance companies in 2004. We adopt a conditional dependence test, which can overcome the sensitivity problem of the structure form setting. The results show that after we control for all explanatory variables, the relationship between organizational forms and distribution channels is conditionally uncorrelated. The result is consistent with Regan and Tzeng (1999); but do contradict to Baranoff and Sager (2003) and Kim et al. (1996).
Subjects
Demand for reinsurance
property-liability insurance
demutualization
affiliated reinsurers
non-affiliated reinsurers
risk retention
organizational form
distribution channel
conditional dependence test
reduced form
structure form
Type
thesis
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