Sabine Wende

External Financing in the Life Insurance Industry: Evidence from the Financial Crisis

The financial crisis and subsequent recession generated sizable operating losses for life insurance companies, yet the consequences were far less significant than for other financial intermediaries. The ability to quickly generate new capital through external issuance and dividend reductions let life insurers maintain healthy levels of equity capital. We use this experience to examine the causes and consequences of external capital issuance by U.S. life insurance companies. We show that, in general, new capital is issued both to support the growth of new business and to replace capital depleted by operating losses. This second channel is particularly important during macroeconomic recessions. Notably, we do not find any evidence that insurers had difficulty generating new capital, unlike other financial service providers that required large amounts of public support. For life insurers, what changed following the financial crisis was the demand to raise external capital, but the supply of external capital appears to have remained constant.

Capital Market Development, Competition, Property Rights, and the Value of Insurer Product-Line Diversification: A Cross-Country Analysis

In this article, we show that the effect of product diversification on performance is not homogeneous across countries. Diversified insurance companies perform significantly worse than their focused competitors in countries with well‐developed capital markets, high levels of property rights protection, and high levels of competition. In addition, we find that the diversification–performance relationship for insurance companies depends on company size. For large insurers operating in countries with less developed capital markets, diversification significantly increases performance. Our results suggest that the optimal organizational structure may be different for insurers operating in emerging economies than for insurers operating in developed countries.

Successful Business Strategies for Insurers Entering and Growing in Emerging Markets

Entering new markets and growing in existing ones is an area of major interest within the insurance industry across the globe. Insurance market growth rates in emerging markets are far in excess of those available in most developed countries. While these growth rates have attracted new and existing firms to these markets, corporate managers face a number of important strategic decisions as they consider establishing or expanding operations in emerging markets. This study evaluates the impact of several strategies on insurer performance in emerging markets. The main findings suggest that overall, successful business strategies for insurers entering or growing in emerging markets involve a high growth rate, increased size and more emphasis on life insurance. When performance is adjusted for risk, lower financial leverage and mutual organisational form are associated with better performance. However, differences in successful business strategies arise across countries when we control for country-level economic and market characteristics.

Einfluss der Wettbewerbsstruktur auf den Erfolg deutscher Versicherungsvermittler

ZusammenfassungSelbstständige Versicherungsvermittler haben eine außerordentlich hohe Bedeutung für die Versicherungsbranche, da sie über 90% des Versicherungsgeschäfts vermitteln und die Kunden betreuen. über die Wettbewerbsstruktur dieses Teilmarktes ist dennoch wenig bekannt. Im vorliegenden Beitrag wird die Wettbewerbsstruktur auf dem deutschen Versicherungsvermittlungsmarkt erstmals umfassend untersucht. Diese Studie betrachtet den Versicherungsvermittlungsmarkt als eigenständigen Markt und deren Akteure nicht nur als reine Absatzorgane von Versicherungsunternehmen. Basierend auf Porters Branchenstrukturmodell wurden Versicherungsvermittler zu ihrer Einschätzung des Wettbewerbs innerhalb des Versicherungsvermittlungsmarktes und zu ihrem Umsatz befragt. Mittels eines Regressionsmodells wird der Zusammenhang zwischen Branchenstruktur und Umsatz analysiert. Die Ergebnisse belegen, dass die Wettbewerbsstruktur einen deutlichen Einfluss auf den Umsatzerfolg der Versicherungsvermittler besitzt.AbstractInsurance agents (including independent insurance brokers) have an extraordinarily high importance for the German insurance industry since they mediate over 90% of insurance companies’ sales volume and provide additional services for customers and policyholders. Nevertheless little is known about the market structure within the insurance agents’ market. Insurance agents are mostly known as a distribution entity of insurance companies. Therefore only limited research has focused on the market of German insurance agents as an independent market. The following article focuses on the market structure of the German insurance agents market which is comprehensively examined for the first time. This study considers the insurance agent market as an independent market and their participants not only as pure distribution entities of insurance companies. Based on Porters Five Forces of Competition Framework exclusive insurance agents and independent insurance brokers were asked to evaluate the competition and market structure within the German insurance agents’ market. We examine the effect of Porters Five Forces on agents’ performance to measure the relation between market structure and performance. The results show that the market structure has a strong influence on total revenues of insurance agents. We find different results for exclusive agents and independent brokers and show that the competitive environment and the market structure affect insurance agents’ performance in different ways.

The effect of monetary policy announcements and government interventions on the US insurance industry during the 2007-2009 crisis

Purpose The authors aim to analyze the impact of monetary policy interventions during the financial crisis of 2007-2009 on the stock prices of US insurance firms. Design/methodology/approach The authors use an event study methodology and a database of 89 policy announcements to analyze if monetary policy interventions could restore stability in the insurance sector. In addition, the authors conduct a second-stage analysis to identify the individual firms’ determinants of their stock market response. Findings The results indicate that the market reaction depends upon the type of policy intervention as well as the timing of the intervention. A second stage analysis examines firm level determinants of the insurers’ stock price responses and finds various firm specific factors also affect the insurers’ reaction to policy interventions. Originality/value First, to the best of the authors’ knowledge, this paper is the first to examine the impact of non-conventional policy announcements on firms from the insurance sector during the financial crisis. Moreover, the authors add to the literature an analysis on how conventional central bank announcements affect insurance firms.