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The Informational Content of Default Risk in UK Insurance Firms

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  • Mario Cerrato
  • Paolo Coccorese
  • Xuan Zhang

Abstract

“Historically, insurers have made money in two ways – returning an underwriting profit and investing premiums and making money on the investment returns.” By Nick Kitchen, Head of Technical Casualty and Motor Lines, Zurich Insurance plc. In this paper, we use a novel data-set of UK public and non-public insurance companies for the period 1985-2014 in order to investigate the empirical relationship between firms’ specific characteristics and default risk. We employ a portfolio approach, and after splitting firms’ returns into underwriting and investment returns, we find evidence that default risk is closely related to size and reinsurance activities, especially for small size firms, and that such firms are much less risky than large firms and earn the highest return when their default risk is low. Some policy implications are also provided.

Suggested Citation

  • Mario Cerrato & Paolo Coccorese & Xuan Zhang, 2020. "The Informational Content of Default Risk in UK Insurance Firms," Working Papers 2020_06, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2020_06
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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