The determinants of investment returns in the fire insurance industry: the case of Sweden, 1903–1939

Abstract

We employ a panel data research design to examine the determinants of investment returns in the Swedish property fire insurance industry from 1903 to 1939 – a period of great economic and political uncertainty. Contrary to expectations, we find that mutual fire insurers generated systematically higher investment returns than stock fire insurers. Investment returns are inversely related to leverage but positively related to liquidity, showing that firms adopting a more precautionary investment strategy attain higher returns.

Variation in organizational form across lines of property insurance: Sweden, 1913–1939

“…Investment earnings are measured as the ratio between capital income and invested assets (assets net of equity). Andersson et al (2013) show that mutual insurers were more successful in generating investment returns than stock insurers. They also show that mutuals on average received a larger capital to premium income because of larger returns and larger reserves (to premium income) than stock insurers, thus potentially making it possible to substitute underwriting profitability with capital income, as suggested by Smith (1989).…”