An analysis of post-demutualisation in the property–liability insurance industry

Licheng Jin (), Gene Lai () and Chia-Ling Ho ()
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Licheng Jin: Southwestern University of Finance and Economics
Gene Lai: University of North Carolina at Charlotte
Chia-Ling Ho: Tamkang University

The Geneva Papers on Risk and Insurance - Issues and Practice, 2022, vol. 47, issue 2, No 3, 279-320

Abstract: Abstract Using a quasi-natural experiment, we examine how demutualisation affects demutualised insurers’ capital, organisational flexibility and alignment of managerial incentives post-demutualisation. First, our results show demutualised insurers have faster surplus growth than matching insurers post-demutualisation. However, the surplus growth differs between demutualised insurers with and without surplus notes. Specifically, the evidence shows that demutualised insurers with surplus notes experience long-term surplus growth, while demutualised insurers without surplus notes experience short-term surplus increases. Second, we find that increased organisational flexibility facilitates merger and acquisition activities for demutualised insurers and helps them to pursue growth and diversification. We find that 51% of demutualised stock insurers become targets in the conversion year. Finally, we find that demutualised insurers have lower underwriting expenses and underwrite more in commercial lines post-demutualisation. Overall, our evidence shows that demutualisation has a positive impact on surplus growth, organisational flexibility and the alignment between managerial incentives and owners' interests.

Keywords: Demutualisation; Access to capital; Organisational flexibility; Managerial incentive alignment (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s41288-021-00231-9

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