Agency Theory and Life Insurer Ownership Structure

Pottier, Steven W.; Sommer, David W.

doi:10.2307/253763

Cited by 77 publications

(77 citation statements)

References 4 publications

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“…10 This means that the taxation of UK life 7 Property-liability insurers normally underwrite short-term (annual renewable) insurance business (e.g., automobile insurance), while life insurers engage in long-term (e.g., life and health) insurance business that relies on mortality tables. Given their significant difference, academic studies normally examine life insurance and property-liability insurance separately (e.g., see Pottier and Sommer, 1997). 8 Shackelford (1996, p. 244) reports that SAP involves both accrual and cash accounting methods and is more conservative than GAAP as it is primarily concerned with reporting the regulatory capital (solvency) position of insurers.…”

Section: Institutional Backgroundmentioning

confidence: 99%

Reinsurance and corporate taxation in the United Kingdom life insurance industry

Adams

Hardwick

Zou

2008

Journal of Banking & Finance

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Section: Institutional Backgroundmentioning

confidence: 99%

Reinsurance and corporate taxation in the United Kingdom life insurance industry

Adams

Hardwick

Zou

2008

Journal of Banking & Finance

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“…2 Such studies are relatively new to insurance. We 1 Regan and Tzeng (1999) provide a comprehensive survey of the literature that also includes Regan (1997), Regan and Tennyson (1996), and Marvel (1982) along with the insurance agency literature of Lamm-Tennant and Starks (1993), Mayers and Smith (1981, 1986, 1988, 1994, Kim, Mayers, and Smith (1996), Cummins and Sommer (1996), Pottier and Sommer (1997), and Sass and Gisser (1998), among others. 2 For example, Shrieves and Dahl (1992) and Jacques and Nigro (1997), among others.…”

Section: Prior Literaturementioning

confidence: 99%

The Relations among Organizational and Distribution Forms and Capital and Asset Risk Structures in the Life Insurance Industry

Baranoff

Sager

2003

J of Risk & Insurance

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This article is the first step toward integrating in a single framework two previously separate lines of research on major structural decisions of life insurers. The literature has previously studied the relation between capital structure and asset risk on the one hand, and the relation between organizational form and distribution system on the other hand, without integrating them. Using life insurer data for 1993-1999, we model the four key insurer decisions of capital structure, asset risk, organizational form, and distribution system as endogenous choices in a single interrelated set of simultaneous equations. The model assesses the nature of the interactions among these decisions. The model also assesses the impact of insurers' fundamental business strategy (treated as predetermined) on these choices. The "business-strategy hypothesis" views other key decisions as jointly determined and driven by the fundamental business strategy, once the latter is set in motion. Confirming previous studies, we find a positive relation between capital ratios and asset risk. We also find an association in the simultaneous context between stock ownership and brokerage distribution, which was not found in prior studies. Stock ownership is related to greater financial and asset risk taking, whereas brokerage distribution is associated with lower risk taking. These and other results are interpreted in light of several theories, including transaction-cost economics (TCE), agency theory, and regulatory and bankruptcy cost avoidance. Deriving from these theories, the finite risk paradigm emerges as the most comprehensive interpretation of the results, as opposed to the risk-subsidy hypothesis of the impact of guarantee funds. We also find support for the notion that the business strategy drives the capital and distribution decisions, as predicted by TCE. Copyright The Journal of Risk and Insurance.

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“…In an attempt to obtain some insights into the extent of managerial control in mutual and proprietary companies in the USA, Pottier and Sommer (1997) undertook an empirical assessment of the operating characteristics of both organizational forms. In developing their hypotheses, Pottier and Sommer (1997) suggest that mutual companies are expected to restrain the extent of discretion allowed to managers by:…”

Section: Introductionmentioning

confidence: 99%

Board Composition and Performance in Life Insurance Companies

O’Sullivan

Diacon

2003

British J of Management

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The past decade has witnessed a renewed emphasis on the quality of board governance worldwide. In the wake of a series of governance reports, particular interest has focused on the role and effectiveness of non-executive board members. This study seeks to add to our understanding of the governance role of non-executive directors by examining the use and usefulness of non-executives in insurance companies. The focus on the insurance industry, which includes both proprietary (stock) and mutual companies, allows us to examine the importance of board governance in the context of different ownership structures. Furthermore, by focusing our study in a period prior to the widespread adoption of the recommendations of the Cadbury Report by UK companies, our findings should more accurately capture the true role of board composition in a less-prescriptive governance environment. Our results suggest that mutual insurers utilize a greater proportion of non-executive directors and are less likely to have CEO/Chairman duality than their proprietary counterparts. This evidence is consistent with mutuals using stronger board governance to compensate for weaker ownership control. Proprietary companies, which are subject to stronger shareholder and capital market control, place less reliance on non-executive monitoring. Using a number of performance measures, we find no significant difference in the behaviour of mutual and proprietary companies with the exception of executive remuneration, (which is significantly higher for proprietary companies); furthermore there is no evidence that mutuals have outperformed their stock company rivals. Overall, our findings suggest that insurance companies emphasize different governance mechanisms depending on the specific monitoring problems they face.

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Agency Theory and Life Insurer Ownership Structure

Cited by 77 publications

References 4 publications

Reinsurance and corporate taxation in the United Kingdom life insurance industry

Reinsurance and corporate taxation in the United Kingdom life insurance industry

The Relations among Organizational and Distribution Forms and Capital and Asset Risk Structures in the Life Insurance Industry

Board Composition and Performance in Life Insurance Companies

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