Thomas R. Berry-Stölzle

Determinants of Corporate Diversification: Evidence from the Property–Liability Insurance Industry

Using a sample of property-liability insurers over the period 1995-2004, we develop and test a model that explains performance as a function of line-of-business diversification and other correlates. Our results indicate that undiversified insurers consistently outperform diversified insurers. In terms of accounting performance, we find a diversification penalty of at least 1 percent of return on assets or 2 percent of return on equity. These findings are robust to corrections for potential endogeneity bias, alternative risk measures, alternative diversification measures, and an alternative estimation technique. Using a market-based performance measure (Tobins Q) we find that the market applies a significant discount to diversified insurers. The existence of a diversification penalty (and diversification discount) provides strong support for the strategic focus hypothesis. We also find that insurance groups underperform unaffiliated insurers and that stock insurers outperform mutuals. Copyright (c) The Journal of Risk and Insurance, 2008.

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.

The Effect of Regulation on Insurance Pricing: The Case of Germany

This article analyzes the impact of policy form regulation on the unit price of insurance and determinants of premium changes using the 1994 deregulation of the German property–liability market as a natural experiment. Our result show that policy form regulation did not increase prices above competitive levels. Factors influencing premium changes are significantly different for the two time periods, pre‐ and post‐deregulation, indicating that regulation affects insurance pricing. Focusing on highly competitive lines after deregulation, we find a significant price decrease, and this decrease is offset by higher prices in the remaining other lines.

Deutsche Pensionsfonds: Eine empirische Analyse

ZusammenfassungSeit Inkrafttreten des Altersvermögensgesetzes am 1. Januar 2002 sind Pensionsfonds als fünfter Durchführungsweg der betrieblichen Altersversorgung zugelassen. Der gesetzliche Rahmen lässt Pensionsfonds viele Freiheiten, was die Ausgestaltung ihrer Produkte (Pensionspläne) und Kapitalanlagestrategien betrifft. Das Institut für Versicherungswissenschaft an der Universität zu Köln führte daher im Frühjahr 2006 eine Umfrage unter deutsche Pensionsfonds durch, um diesen neuen Markt für Pensionspläne erstmals empirisch zu untersuchen. Der vorliegende Artikel stellt erste ausgewählte Ergebnisse dieser Studie vor. Der Fokus unserer Analyse liegt dabei auf den Charakteristika der angebotenen Pensionspläne, den diesen zugrunde liegenden Asset Liability Management Methoden, sowie den allgemeinen Geschäftsstrategien der Pensionsfonds.AbstractOn January 1, 2002 the Altersvermögensgesetz went in force which established the Pensionsfonds as an additional form of organization providing company pension plans. This law includes very few restrictions on Pen-sionsfonds’ pension products and investments. To explore this new market for company pension plans empirically, the Institut für Versicherungswissenschaft at the University of Cologne conducted a comprehensive survey among the German Pensionsfonds. This article presents selected results of an ongoing research project. In our analysis, here, we focus on the pension products offered by the Pensionsfonds, their asset liability management, and their business strategies.