Guaranty Funds and Risktaking: Evidence from the Insurance Industry

D. Mayers, S.J. Lee and C.W. Smith

The A. Gary Anderson Graduate School of Management from The A. Gary Anderson Graduate School of Management. University of California Riverside

Abstract: This paper examines changes in property-liability insurers' risk-taking around enactments of state guaranty fund laws. Our evidence suggests that the risk of insurers' asset portfolios increases following enactments. But this increase in risk is significant only for stock insurers. Our evidence of increased risk-taking following guaranty-fund adoptions suggests that the way these funds are organized creates counter-productive investment incentives, especially for stock companies. Because these laws were enacted by states of the period 1969-1982, our evidence on changes in risk-taking helps resolve statistical problems that have been troublesome for studies of bank deposit insurance.

Keywords: INSURANCE; RISK; ENTERPRISES (search for similar items in EconPapers)
JEL-codes: D80 D81 (search for similar items in EconPapers)
Pages: 25 pages
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:fth:caland:96-13

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