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Supervisory power and insurer financial stability: the role of institutional quality

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  • María Rubio-Misas

    (Universidad de Málaga)

Abstract

This is the first study to investigate whether country institutional quality influences the impact of supervisory power on insurer soundness. It tests the hypothesis arguing that institutional quality enhances the implementation capacity of supervisors versus the one that maintains that institutional quality mitigates the impact of supervisory power on insurer soundness, particularly when this effect is negative. An analysis is carried out on firms operating in the insurance markets of 12 Muslim-populous countries over the eight-year sample period 2009–2016. As a proxy of insurers’ financial stability, we use the Z-score and conduct the study by employing the two-step system generalised method of moments. We find a negative impact of supervisory power on insurer soundness—exercised by increasing portfolio risk—that is mitigated by national institutional quality, in particular by government effectiveness, regulatory quality and control of corruption. The findings emphasise the view that national institutional quality avoids private use of supervision.

Suggested Citation

  • María Rubio-Misas, 2024. "Supervisory power and insurer financial stability: the role of institutional quality," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 49(4), pages 804-830, October.
    • Handle: RePEc:pal:gpprii:v:49:y:2024:i:4:d:10.1057_s41288-023-00309-6
    DOI: 10.1057/s41288-023-00309-6
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