Larry A. Cox

Systematic Risk, Unsystematic Risk, and Property-Liability Rate Regulation

Several researchers suggest that property-liability rates be regulated using total variance risk measures. Others insist that only systematic risk measures are relevant. A normative model is proposed to reconcile these diverse approaches. Empirical analysis indicates that the model provides a higher risk premium and is reliable when compared to the mean-variance Capital Asset Pricing Model.

Early Mover Advantages: Evidence from the Long‐Term Care Insurance Market

Researchers frequently question whether financial firms benefit by developing new products because barriers to entry common to other industries generally do not exist. Studies of early mover advantages for new financial products provide mixed evidence at best. We find evidence of early mover advantages in the relatively young market for long‐term care insurance (LTCI) using data that allow broad testing of financial performance. Product differentiation, individual lines exposure, firm size, and traditional health insurance experience also affect financial performance.

Risk Allocation Across the Enterprise: Evidence from the Insurance Industry

Financial researchers initially regarded hedging activities as a means to reduce total firm risk, which often is defined in terms of cash flow volatility. More recently, researchers have focused on the strategic allocation of risk. Direct tests of risk allocation have been problematic, however, because hedging data are rarely available and, when available, are specific only to a single operation of the firm, such as bank lending. In this study, we exploit unique data from the insurance industry that allows us to observe hedging proxies for both investment and insurance underwriting risks and test the risk allocation hypothesis developed in the finance literature. We also conduct separate examinations of life-health and property-casualty insurers, which reveal differences in the risks and hedging activities of these two types of insurers.