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Determinants of Insurers' Performance in Risk Pooling, Risk Management, and Financial Intermediation Activities

Georges Dionne, Robert Gagné and Abdelhakim Nouira

Cahiers de recherche from CIRPEE

Abstract: Corporate finance theory predicts that firms' characteristics affect agency costs and hence their efficiency. Cummins et al. (2006) have proposed a cost function specification that measures separately insurer efficiency in handling risk pooling, risk management, and financial intermediation functions. We investigate the insurer characteristics that determine these efficiencies. Our empirical results show that mutuals outperform stock insurers in handling the three functions. Independent agents and high capitalization reduce the cost efficiency of risk pooling. Certain characteristics such as being a group of affiliated insurers, handling a higher volume of business in commercial lines, assuming more reinsurance or investing a higher proporotion of assets in bonds, do significantly increase insurers' efficiency in risk management and financial intermediation.

Keywords: Risk pooling; risk management; financial intermediation; property-liability insurance; efficiency; agency costs (search for similar items in EconPapers)
JEL-codes: D21 D23 G22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff, nep-ias and nep-rmg
Date: 2007
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Working Paper: Determinants of Insurers’ Performance in Risk Pooling, Risk Management, and Financial Intermediation Activities (2007) Downloads
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