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The Organizational Structure of Insurance Companies: The Role of Heterogeneous Risks and Guaranty Funds

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  • James A. Ligon
  • Paul D. Thistle

Abstract

We examine a market with observably heterogeneous risks and a government sponsored guaranty fund and consider whether it is optimal to form a single insurer or separate insurers for each consumer type. Given the economic environment, pooling never dominates the formation of separate insurance companies. This result provides an incentive for the phenomenon of insurance fleets.

Suggested Citation

  • James A. Ligon & Paul D. Thistle, 2007. "The Organizational Structure of Insurance Companies: The Role of Heterogeneous Risks and Guaranty Funds," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(4), pages 851-862, December.
    • Handle: RePEc:bla:jrinsu:v:74:y:2007:i:4:p:851-862
    DOI: 10.1111/j.1539-6975.2007.00237.x
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    References listed on IDEAS

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    1. Cummins, J David, 1988. " Risk-Based Premiums for Insurance Guaranty Funds," Journal of Finance, American Finance Association, vol. 43(4), pages 823-839, September.
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    Cited by:

    1. Ligon, James A. & Malm, James, 2018. "Litigation risk, financial distress, and the use of subsidiaries," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 255-272.
    2. Hato Schmeiser & Joël Wagner, 2013. "The Impact of Introducing Insurance Guaranty Schemes on Pricing and Capital Structure," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(2), pages 273-308, June.
    3. 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.
    4. Gilles Bernier & Ridha M. Mahfoudhi, 2010. "On the Economics of Postassessments in Insurance Guaranty Funds: A Stakeholders’ Perspective," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(4), pages 857-892, December.
    5. Dong, Ming & Gründl, Helmut & Schlütter, Sebastian, 2012. "The risk-shifting behavior of insurers under different guarantee schemes," ICIR Working Paper Series 12/12, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).

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