Demutualisation, Control and Efficiency in the U.S. Life Insurance Industry

Abstract

This paper examines the role of corporate governance in the demutualisation wave in the U.S. life insurance industry during the 1990s and 2000s. The efficiency hypothesis suggests a firm should experience improved performance after demutualisation and managers should only gain from superior performance. Alternately, the managerial welfare hypothesis proposes that executives gain independence of company performance. This research suggests that demutualisation is value-enhancing for firms converting through initial public offerings (IPOs), but value-neutral for firms that convert but stay private. Firms converting into public companies experience increased CEO turnover that leads to efficiency improvement. CEOs of these firms receive higher compensation after demutualisation, but most of the gain is due to a jump in incentive compensation. Firms converting but staying private do not have a similar significant increase in CEO compensation. Overall, our results provide evidence that value-enhancement, not private managerial welfare, motivates demutualisation.

Efficiency Determinants and Capacity Issues in Angolan Insurance Companies

“…Xie et al . () examined the role of corporate governance in the demutualisation wave in the US life insurance industry during the 1990s and 2000s based on DEA. Hsu and Petchsakulwong () examined the relationship between corporate governance and the efficiency performance of public non‐life insurance companies in Thailand over the period 2000‐2007 using the DEA model to estimate the efficiency performance of insurance companies that encompass their technical, allocation type, cost and revenue efficiency.…”

“…Recent research on insurance efficiency includes the work of Bertoni and Croce (2011), who applied DEA to a panel of life insurance companies operating in five European countries (Germany, France, Italy, Spain and the UK) between 1997 and 2004 in order to estimate their productivity using a Malmquist efficiency model. Xie et al (2011) examined the role of corporate governance in the demutualisation wave in the US life insurance industry during the 1990s and 2000s based on DEA. Hsu and Petchsakulwong (2010) examined the relationship between corporate governance and the efficiency performance of public non-life insurance companies in Thailand over the period 2000-2007 using the DEA model to estimate the efficiency performance of insurance companies that encompass their technical, allocation type, cost and revenue efficiency.…”

Cost efficiency of African insurance companies using a finite mixture model

“…With respect to the impact of a specific contextual variable on efficiency scores, the role of corporate governance merited attention in two studies. Xie, Lu, Reising & Stohs (2011) used DEA to examine the role of corporate governance in the U.S. life insurance industry during the 1990s and 2000s. Their findings suggest that demutualisation is value-enhancing for firms being sold through initial public offerings (IPOs), but is value-neutral for firms that convert, but remain private.…”

Cost efficiency of African insurance companies using a finite mixture model

“…Xie, Lu, Reising & Stohs (2011) used DEA to examine the role of corporate governance in the U.S. life insurance industry during the 1990s and 2000s. Their findings suggest that demutualisation is value-enhancing for firms being sold through initial public offerings (IPOs), but is value-neutral for firms that convert, but remain private.…”