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Determinants of insurers’ performance in risk pooling, risk management, and financial intermediation activities

Author

Listed:
  • Dionne, Georges

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Gagné, Robert

    (HEC Montreal, Department of Applied Economic)

  • Nouira, Abdelhakim

    (HEC Montreal, Canada Research Chair in Risk Management)

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 proportion of assets in bonds, do significantly increase insurers’ efficiency in risk management and financial intermediation.

Suggested Citation

  • Dionne, Georges & Gagné, Robert & Nouira, Abdelhakim, 2007. "Determinants of insurers’ performance in risk pooling, risk management, and financial intermediation activities," Working Papers 07-4, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:2007_004
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Risk pooling; risk management; financial intermediation; property-liability insurance; efficiency; agency costs;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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