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.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number
07-03.
Length: 40 pages Date of creation: Apr 2007 Date of revision: Handle: RePEc:iea:carech:0703
Contact details of provider: Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7 Phone: (514) 340-6463 Fax: (514) 340-6469 Email: Web page: http://www2.hec.ca/iea/ More information through EDIRC
Order Information: Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7 Email:
For technical questions regarding this item, or to correct its listing, contact: (Patricia Power).