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The Combined Effect of Enterprise Risk Management and Diversification on Property and Casualty Insurer Performance

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  • Jing Ai
  • Vickie Bajtelsmit
  • Tianyang Wang

Abstract

In a well†designed enterprise risk management (ERM) program, the firm integrates risk management into the strategic planning process, addressing strategic, financial, operational, and hazard risks under a single overarching process. This is particularly important to large financial firms, such as property and casualty (P&C) insurers, which face a diverse set of risks. Using a sample of P&C insurers with S&P ERM quality ratings from 2006 to 2013, we find that the quality of a firm's ERM is a significant determinant of P&C insurer performance and that, for firms with high†quality ERM programs, product line diversification has a significant positive effect on performance.

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  • Jing Ai & Vickie Bajtelsmit & Tianyang Wang, 2018. "The Combined Effect of Enterprise Risk Management and Diversification on Property and Casualty Insurer Performance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 85(2), pages 513-543, June.
    • Handle: RePEc:bla:jrinsu:v:85:y:2018:i:2:p:513-543
    DOI: 10.1111/jori.12166
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    Cited by:

    1. Yu Zhao & Huaming Du & Qing Li & Fuzhen Zhuang & Ji Liu & Gang Kou, 2022. "A Comprehensive Survey on Enterprise Financial Risk Analysis from Big Data Perspective," Papers 2211.14997, arXiv.org, revised May 2023.
    2. Chih-Te Yang & Yensen Ni & Mu-Hsiang Yu & Yuhsin Chen & Paoyu Huang, 2023. "Decoding the Profitability of Insurance Products: A Novel Approach to Evaluating Non-Participating and Participating Insurance Policies," Mathematics, MDPI, vol. 11(13), pages 1-16, June.
    3. Gulnara N. Kaigorodova* & Guzel Kh. Pyrkova & Alfiya A. Mustafina & Darya P. Alyakina & Ksenia A. Syvorotkina, 2018. "Mechanisms for Compensation of Damage," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 387-391:1.
    4. Nguyen, Duc Khuong & Vo, Dinh-Tri, 2020. "Enterprise risk management and solvency: The case of the listed EU insurers," Journal of Business Research, Elsevier, vol. 113(C), pages 360-369.
    5. Patrick Dahmen, 2023. "Organizational resilience as a key property of enterprise risk management in response to novel and severe crisis events," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 26(2), pages 203-245, July.
    6. Evan M. Eastman & Jianren Xu, 2021. "Market reactions to enterprise risk management adoption, incorporation by rating agencies, and ORSA Act passage," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 24(2), pages 151-180, June.
    7. Doureige J. Jurdi & Sam M. AlGhnaimat, 2021. "The Effects of ERM Adoption on European Insurance Firms Performance and Risks," JRFM, MDPI, vol. 14(11), pages 1-17, November.
    8. Courtney B. Baggett & Cassandra R. Cole, 2023. "Insurance groups, product diversification, and the role of surplus lines affiliation," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 26(1), pages 35-56, March.
    9. Patty Duijm & Ilke Van Beveren, 2022. "Product diversification as a performance boosting strategy? Drivers and impact of diversification strategies in the property‐liability insurance industry," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(3), pages 303-328, September.
    10. Eduart Villanueva & María Antonia Nuñez & Izaias Martins, 2022. "Impact Of Risk Governance, Associated Practices and Tools on Enterprise Risk Management: Some Evidence from Colombia," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 14(1), pages 187-206, January.
    11. Muhammed Altuntas & Thomas R. Berry-Stölzle & J. David Cummins, 2021. "Enterprise risk management and economies of scale and scope: evidence from the German insurance industry," Annals of Operations Research, Springer, vol. 299(1), pages 811-845, April.
    12. Baltuttis, Dennik & Töppel, Jannick & Tränkler, Timm & Wiethe, Christian, 2020. "Managing the risks of energy efficiency insurances in a portfolio context: An actuarial diversification approach," International Review of Financial Analysis, Elsevier, vol. 68(C).
    13. Adam, Mukhtar & Soliman, Alaa. M. & Mahtab, Nehal, 2023. "Measuring enterprise risk management implementation: A multifaceted approach for the banking sector," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 244-256.
    14. Sorin Gabriel Anton & Anca Elena Afloarei Nucu, 2020. "Enterprise Risk Management: A Literature Review and Agenda for Future Research," JRFM, MDPI, vol. 13(11), pages 1-22, November.
    15. Rami Shaheen & Mehmet Ağa & Husam Rjoub & Ahmad Abualrub, 2020. "Investigation of the Pillars of Sustainability Risk Management as an Extension of Enterprise Risk Management on Palestinian Insurance Firms’ Profitability," Sustainability, MDPI, vol. 12(11), pages 1-20, June.
    16. Courtney B. Baggett & Cassandra R. Cole & George Crowley & E. Tice Sirmans, 2020. "Spillover effects of increased health insurance enrollment on workers’ compensation insurance," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 23(1), pages 53-74, March.
    17. Arash Khalili Nasr & Saideh Alaei & Fateme Bakhshi & Farzin Rasoulyan & Hojat Tayaran & Mohammad Farahi, 2019. "How enterprise risk management (erm) can affect on short-term and long-term firm performance: evidence from the Iranian banking system," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(2), pages 1387-1403, December.

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