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Investment Returns and Yields to Holders of Insurance

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  • Smith, Michael L
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    Abstract

    This article demonstrates how investment returns can affect yields to holders of insurance policies in a competitive market and empirically tests whether such effects are present. Data for U.S. stock property-liability insurers during 1950-82 are consistent with insurance yields reflecting returns from taxable bonds. Also, the article shows how the pre-1987 U.S. tax code creates an opportunity for arbitrage by insurers between the market for property-liability insurance and the market for tax-exempt securities. Tests for the effect of this arbitrage indicate that tax-exempt/taxable yield ratios for bond maturities lying near five and ten years also have affected yields to holders of insurance. Copyright 1989 by the University of Chicago.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 62 (1989)
    Issue (Month): 1 (January)
    Pages: 81-98

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    Handle: RePEc:ucp:jnlbus:v:62:y:1989:i:1:p:81-98

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Danny Yeung, 2012. "The Impact of Institutional Ownership: A Study of the Australian Equity Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 11.
    2. Soon-Jae Lee & Michael L. Smith, . "Property-Casualty Insurance Guaranty Funds And Insurer Vulnerability To Misfortune," Research in Financial Economics 9616, Ohio State University.
    3. Heni Boubaker & Nadia Sghaier, 2014. "How Do the Interest Rate and the Inflation Rate Affect the Non-Life Insurance Premiums ?," Working Papers 2014-282, Department of Research, Ipag Business School.
    4. Grace, Martin & Hotchkiss, Julie L., 1995. "External impacts on the property-liability insurance cycle," MPRA Paper 9825, University Library of Munich, Germany.
    5. Catherine Bruneau & Nadia Sghaier, 2014. "Cyclicity in the French PropertyLiability Insurance Industry - New Findings over the Recent Period," Working Papers 2014-047, Department of Research, Ipag Business School.
    6. Ronald K. Chung & Hung-Gay Fung & Gene C. Lai & Robert C. Witt, 1994. "Causal Relationships Between Premiums and Losses, and Causes of the Underwriting Cycles," Risk and Insurance 9407008, EconWPA.
    7. Lee, Soon-Jae & Smith, Michael L., 1999. "Property-casualty insurance guaranty funds and insurer vulnerability to misfortune," Journal of Banking & Finance, Elsevier, vol. 23(9), pages 1437-1456, September.
    8. Lee, Chien-Chiang & Huang, Wei-Ling & Yin, Chun-Hao, 2013. "The dynamic interactions among the stock, bond and insurance markets," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 28-52.
    9. Soon-Ja Lee & Michael L. Smith, . "Property-Casualty Insurance Guaranty Funds and Insurer Vulnerability to Misfortune," Research in Financial Economics 9506, Ohio State University.

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