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Guaranty Funds, Government Shareholding and Risk Taking: Evidence from China

Author

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  • Shi Hong

    (Department of Social Security and Risk Management, School of Public Affairs, Zhejiang University, 866 Yuhangtang Rd, Xihu District, Hangzhou, Zhejiang 3100058, China)

  • Shizhe Bao

    (School of Information and Electronic Engineering, Zhejiang University of Science and Technology, Hangzhou, 310023, China.)

Abstract

This study examines the risk-subsidy, monitoring and ownership structure hypotheses in relation to guaranty funds using a sample from the Chinese insurance industry. Compared to the American model, Chinese insurance guaranty funds possess the following distinct features: pre-assessment, separate accumulation and partial responsibility for peer bankruptcy. We find that the risks of insurance firms decline following the establishment of guaranty funds. Pre-assessment provides a limited risk incentive to insurers and one that is easily offset by stakeholder monitoring. In terms of the ownership structure hypothesis, we find that foreign insurers are more risk-driven than their state-controlled counterparts. Our findings have implications for countries striving to lessen the adverse effect of guaranty funds as well as for the improvement of insurance regulation policy in China.

Suggested Citation

  • Shi Hong & Shizhe Bao, 2015. "Guaranty Funds, Government Shareholding and Risk Taking: Evidence from China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 40(4), pages 653-677, October.
    • Handle: RePEc:pal:gpprii:v:40:y:2015:i:4:p:653-677
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    Cited by:

    1. Mary Kelly & Anne Kleffner & Grant Kelly, 2020. "An examination of catastrophes, insurance guaranty funds and contagion risk," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(2), pages 256-280, April.
    2. Chen-Ying Lee, 2020. "The Impact of Product Diversification on Risk-taking Behavior in Property and Liability Insurance Firms," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(3), pages 1-9.

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