Why Firms Purchase Property Insurance?

Aunon-Nerin, Daniel; Ehling, Paul

doi:10.2139/ssrn.972120

Cited by 27 publications

(57 citation statements)

References 51 publications

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“…We first classify them into different groups based on the percentage of reinsurance they accept relative to their total written gross premium, and then we analyse the credit spread of firms who accepted reinsurance across the different groups. Aunon-Nerin and Ehling (2008) show that indemnity contracts such as reinsurance contracts are pure hedging instruments. Adam and Upreti (2015) find that reinsurance enables primary insurers to have sufficient risk capacity for planning and pricing new business lines.…”

Section: Default Clustering and Systemic Riskmentioning

confidence: 99%

Analysing the Determinants of Credit Risk for General Insurance Firms in the UK

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper estimates a reduced-form model to assess the credit risk of General Insurance (GI) non-life firms in the UK. Compared to earlier studies, it uses a much larger sample including 30 years of data for 515 firms, and also considers a much wider set of possible determinants of credit risk. The empirical results suggest that macroeconomic and firm-specific factors both play important roles. Other key findings are the following: credit risk varies across firms depending on their business lines; there is default clustering in the GI industry; different reinsurance levels also affect the credit risk of insurance firms. The implications of these findings for regulators of GI firms under the coming Solvency II are discussed.

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Section: Default Clustering and Systemic Riskmentioning

confidence: 99%

Analysing the Determinants of Credit Risk for General Insurance Firms in the UK

2016

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“…Numerous empirical studies have aimed at testing these factors influencing if and how much insurance is demanded by corporations. Most of the studies focus on commercial property insurance (i.e., Aunon‐Nerin & Ehling, ; Hoyt & Khang, ; Krummaker & Schulenburg, ; Regan & Hur, ; Yamori, ; Zou, Adams, & Buckle, ), but there is also work on other lines of business such as directors and officers insurance (Boyer & Delvaux‐Derome, ; Core, ), reinsurance (Cole & McCullough, ; Garven & Lamm‐Tennant, ; Mayers & Smith, ; Reißaus, ), terrorism insurance (Michel‐Kerjan, Raschky, & Kunreuther, ; Thomann, Pascalau, & Schulenburg, ), export credit insurance (Klasen, ), and business interruption insurance (Hoppe, Gatzert, & Gruner, ). Besides focusing directly on insurance demand by firms, there are also various empirical studies and surveys in the wider area of risk management and the use of derivatives (e.g., Bodnar, Giambona, Graham, & Harvey, ; Bodnar, Giambona, Graham, Harvey, & Marston, ; Fatemi and Glaum, ; Liebenberg & Hoyt, ; Nance, Smith, & Smithson, ).…”

Section: Summary On Firms Insurance Demand Theorymentioning

confidence: 99%

Firm's demand for insurance: An explorative approach

Krummaker

2019

Risk Manage Insurance Review

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This paper addresses the question, what influences the insurance demand of companies and examines the influence of managerial risk aversion in this decision process. An explorative research approach based on qualitative data analysis is applied to explore the factors influencing the insurance related decision behavior in organizations. Using interviews and observations of firm's insurance managers, the results identify interdependencies between factors of insurance demand, such as ownership structure, managerial discretion, volatility of earning, size, services of the insurer, and business diversification which allows to propose a framework of contextual factors affecting company's insurance demand. Within this framework, the data imply managerial risk attitudes as decisive factor in the decision process about insurance demand in companies. This explorative study enriches the existing theories of firms’ insurance demand and addresses feedback from practice into theory.

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“…Existing work on risk management sometimes suffers from the fact that firms can use standard financial products for speculating as well as hedging. Aunon‐Nerin and Ehling () overcome this problem by using a sample of firms that hedge risk by purchasing property insurance for which speculation would be tantamount to fraud. An advantage of looking at the health insurance decision is that health insurance is not tradable, making it unlikely firms use health insurance for speculation.…”

Section: Related Literaturementioning

confidence: 99%

“…Understanding market outcomes before expectations of new legislation matters for the continuing application of the ACA and any proposed changes. Second, this sample collects more than 10 times as many firms as used in Jensen, Cotter, and Morrisey () (274 firms) and Aunon‐Nerin and Ehling () (235 firms). Moreover, the variation in the choice between hedging and not hedging is quite large compared to previous research.…”

Section: Data and Empirical Predictionsmentioning

confidence: 99%

Why Do Firms Use Insurance to Fund Worker Health Benefits? The Role of Corporate Finance

Dalton¹,

Holland

2017

J of Risk & Insurance

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When a firm offers health benefits to workers, it exposes the firm to the risk of making payments when workers get sick. A firm can either pay health expenses out of its general assets, keeping the risk inside the firm, or it can purchase insurance, shifting the risk outside the firm. We analyze the firm's decision to manage this risk. Using data on the insurance decisions of publicly-traded firms, we find that smaller firms, firms with more investment opportunities, and firms that face a convex tax schedule are more likely to hedge the risk of health benefit payments. Health risk is common to all firms, making this application an important contribution to understanding firms' hedging decisions. Additionally, we reveal new and important determinants of the hedging decision relative to regulatory regimes. We also show that hedging health risk mitigates investment-cash flow sensitivities.JEL Classification: G3, I13

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Why Firms Purchase Property Insurance?

Cited by 27 publications

References 51 publications

Analysing the Determinants of Credit Risk for General Insurance Firms in the UK

Analysing the Determinants of Credit Risk for General Insurance Firms in the UK

Firm's demand for insurance: An explorative approach

Why Do Firms Use Insurance to Fund Worker Health Benefits? The Role of Corporate Finance

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