The Dynamic Interactions between Risk Management, Capital Management, and Financial Management in the U.S. Property/Liability Insurance Industry

Born Patricia, Lin Hong-Jen, Wen Min-Ming and Yang Charles C.
Additional contact information
Born Patricia: Florida State University
Lin Hong-Jen: The City University of New York
Wen Min-Ming: California State University, Los Angeles
Yang Charles C.: Florida Atlantic University

Asia-Pacific Journal of Risk and Insurance, 2009, vol. 4, issue 1, 21

Abstract: This study examines empirically how risk management, financial management, and capital management are related to each other in the property/liability insurance industry, thereby reflecting interactions in managerial decisions such as the choice of derivatives and reinsurance use, the allocation of asset risks, the determination of underwriting activities and liability risks, and the adequacy of capital levels. This research contributes to the literature by adopting structural equation modeling to capture not only the dynamic interactions among capital management, financial management, and risk management, but also the effects of internal integrated factors or external regulatory factors on these managerial decisions. Among the empirical findings of this study, it is shown that risk management, capital management and financial management should be assessed under an integrated framework as emphasized in the concept of enterprise risk management. In addition, regulatory requirements embedded in the insurance industry might play an essential role in the integration of managerial decisions.

Keywords: risk management; capital management; financial management; property/liability insurance (search for similar items in EconPapers)
Date: 2009
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DOI: 10.2202/2153-3792.1044

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