Insurer Growth Strategies

We study corporate growth strategy within the U.S. property–casualty insurance industry—where firms are required to report uniquely detailed operating information. We present and test two hypotheses related to the manner in which firms choose to grow: the pecking order hypothesis and the managerial discretion hypothesis. Our results imply that insurers follow a general pecking order of growth strategies, where they tend to grow first by entering new states, then by adding new lines of business, and finally through acquisitions. This order is consistent with firms initially choosing to grow in the least costly and complex manner and subsequently choosing more costly and complex methods. We also find evidence in support of the managerial discretion hypothesis as mutual insurers are less likely to choose to grow and, when they do, they tend to select less complex growth methods.