Xiaoying Xie

The Impact of CEO Turnover on Property–Liability Insurer Performance

Chief executive officer (CEO) turnover has long been an important topic in the academic literature. Previous research has focused mostly on the rationale for CEO turnovers, or circumstances that lead to CEO changes, with much less attention paid to how CEO turnovers affect future firm performance. We extend the literature regarding the impact of CEO turnover on performance using data for U.S. property‐liability insurers. Measuring firm performance with cost efficiency (CE) and revenue efficiency (RE) scores, we find strong support for the hypothesis that firms with a CEO turnover, especially those with a nonroutine turnover, experience more favorable performance changes than firms without a CEO turnover.

Efficiency, productivity, and scale economies in the U.S. property-liability insurance industry

The paper examines efficiency, productivity and scale economies in the U.S. property-liability insurance industry. Productivity change is analyzed using Malmquist indices, and efficiency is estimated using data envelopment analysis (DEA). The results indicate that the majority of firms below median size in the industry are operating with increasing returns to scale, and the majority of firms above median size are operating with decreasing returns to scale. However, a significant number of firms in each size decile have achieved constant returns to scale. Over the sample period, the industry experienced significant gains in total factor productivity, and there is an upward trend in scale and allocative efficiency. More diversified firms, stock insurers, and insurance groups were more likely to achieve efficiency and productivity gains. Higher technology investment is positively related to efficiency and productivity improvements.

Market values and efficiency in US insurer acquisitions and divestitures

Purpose - The purpose of this paper is to determine the market-value relevance of frontier efficiency scores and to test hypotheses from corporate control and production theory by analyzing the market response to US property–liability (P–L) insurer acquisitions and divestitures. Design/methodology/approach - Cost and revenue efficiencies are estimated based on accounting data for US P–L insurers using data envelopment analysis. The market-value response to acquisitions and divestitures is estimated using a standard market model event study. Regression analysis is used to measure the relationship between abnormal returns (dependent variable) and efficiency (independent variable), along with a set of control variables. Findings - The results show that acquirers, targets and divesting firms all have significant positive abnormal returns around announcement dates. We also find that efficient acquirers and targets have higher cumulative abnormal returns (CAR) but inefficient divesting firms have higher CARs. Research limitations/implications - The findings are consistent with insurance acquisitions and divestitures being driven primarily by value-maximizing motivations, consistent with corporate control and production theory. Practical implications - Frontier efficiency scores based on accounting data provide value-relevant information for insurance managers. Originality/value - This is one of only a few papers that relate frontier efficiency to market values and is the first paper to do this for the insurance industry. It is also one of only two existing papers that analyze the value relevance of efficiency scores in the context of mergers and acquisitions.

The United States Insurance Market: Characteristics and Trends

The United States (U.S.) is home to the largest insurance market in the world. With over a trillion dollars in premiums written in 2003 (approximately 9.6 percent of gross domestic product (GDP)), insurance operations from the U.S. generated over 35 percent of the worldwide total, a market share in excess of the next four largest countries combined (Insurance Information Institute (III) 2005d, p.1).3 More than half of the 100 largest publicly traded insurance firms in the world are traded on U.S. exchanges. In 2003, seven of the top ten global insurance brokerage firms were U.S. companies (III 2005b, p. 4). The insurance sector is also a significant source of employment, comprising, on average, 2.1 percent of the entire U.S. workforce in the years 1994 to 2003 (III 2005b, p. 13). In 2003, insurers alone provided employment for over 1.4 million U.S. workers, while another 840,000 workers were employed at insurance agencies, brokerages, and at other firms with insurance-related activities.

Contingent Commissions, Insurance Intermediaries, and Insurer Performance

This research investigates the relationship shared by contingent commission usage and insurer performance. We assess performance using both frontier efficiency and financial performance measures. Our findings reveal that the relationship is complex and varies across differing insurer business models. We find that nonusers of contingent commissions are more cost and revenue efficient than are users of contingents. However, among insurers that use contingents, relatively higher levels of use are associated with more efficient operations and also better financial performance. Additionally, these findings are conditioned on the type of distribution system the insurer employs.

Do Firms Time Seasoned Equity Offerings? Evidence from SEOs Issued Shortly after IPOs

We examine whether firms take advantage of brief windows of opportunity to time seasoned equity offerings (SEOs) when their equity is substantially overvalued given managers’ private information. We find that firms experiencing larger IPO underpricing, larger stock price run-ups after the IPO, and larger IPO offer size tend to return to the market with an SEO earlier than the others. Firms which issue SEOs quickly after an IPO underperform in comparison to their peers. The mean three-day abnormal return of firms issuing SEOs within six months of IPOs is 2.69% lower than that of firms issuing SEOs six months or more following their IPOs. Firms issuing SEOs shortly after their IPOs also exhibit worse long-run stock returns and operating performance. The results are most consistent with the hypothesis that managers with private information time SEOs in ways that benefit existing shareholders.

Market Value Relevance of Frontier Efficiency: Evidence from U.S. Property-Liability Insurance Acquisitions and Divestitures

This paper examines the relationship between firm efficiency and stock market reaction to acquisitions and divestitures in the US property-liability insurance industry during the period 1997-2003. We use data envelopment analysis (DEA) to estimate firm cost and revenue efficiency. Abnormal returns are measured using the standard market model event study methodology. We then conduct multiple regression analysis with cumulative abnormal returns as dependent variables and efficiency and control variables as regressors. The results show that efficient acquirers and targets have higher cumulative abnormal returns but inefficient divesting firms have higher cumulative abnormal returns. The findings are consistent with insurance acquisitions and divestitures being driven primarily by value-maximizing motivations and also show that frontier efficiency provides relevant information for value-maximizing managers.

Efficiency and Productivity in the US Property-Liability Insurance Industry: Ownership Structure, Product and Distribution Strategies

The chapter examines efficiency and productivity of US property-liability (P-L) insurers using data envelopment analysis (DEA). We estimate pure technical, scale, cost, revenue and profit efficiency over the period 1993–2011. Insurers’ adjacent year total factor productivity changes and their contributing factors are also investigated. In particular, we explore the relationship of insurers’ efficiency with their ownership structure, product and distribution strategies. Regression analyses are also performed to explore the relationships between firm characteristics, efficiency and productivity. The results indicate US P-L insurance industry has improved its efficiency and productivity over time. Insurers’ product strategy, distribution system, and diversification strategy are important determinants of insurers’ efficiency and productivity, along with other firm characteristics.