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Guaranty Funds and Risktaking: Evidence from the Insurance Industry

Author

Listed:
  • Mayers, D.
  • Lee, S.J.
  • Smith, C.W.

Abstract

This paper examines changes in property-liability insurers' risk-taking around enactments of state guaranty fund laws. Our evidence suggests that the risk of insurers' asset portfolios increases following enactments. But this increase in risk is significant only for stock insurers. Our evidence of increased risk-taking following guaranty-fund adoptions suggests that the way these funds are organized creates counter-productive investment incentives, especially for stock companies. Because these laws were enacted by states of the period 1969-1982, our evidence on changes in risk-taking helps resolve statistical problems that have been troublesome for studies of bank deposit insurance.

Suggested Citation

  • Mayers, D. & Lee, S.J. & Smith, C.W., 1996. "Guaranty Funds and Risktaking: Evidence from the Insurance Industry," The A. Gary Anderson Graduate School of Management 96-13, The A. Gary Anderson Graduate School of Management. University of California Riverside.
    • Handle: RePEc:fth:caland:96-13
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    More about this item

    Keywords

    INSURANCE ; RISK ; ENTERPRISES;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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