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Managing Capital via Internal Capital Market Transactions: The Case of Life Insurers

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  • Greg Niehaus

Abstract

The movement of capital within insurance groups is important for understanding insolvency risk management, as well as regulatory policies regarding capital standards and group supervision. Panel data estimates indicate that, on average, a dollar decrease in performance (net income plus unrealized capital gains) when performance is negative is associated with a $0.26 increase in capital contributions to life insurers from other entities in the group, and that a dollar increase in performance when performance is positive is associated with a $0.56 increase in the amount of internal shareholder dividends paid by life insurers to other entities in the group. Moreover, the sensitivity of internal dividends to performance is higher during the financial crisis than the noncrisis period. Also, insurers with low (high) risk†based capital ratios receive more (less) internal capital contributions than other insurers, holding other factors constant.

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  • Greg Niehaus, 2018. "Managing Capital via Internal Capital Market Transactions: The Case of Life Insurers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 85(1), pages 69-106, March.
    • Handle: RePEc:bla:jrinsu:v:85:y:2018:i:1:p:69-106
    DOI: 10.1111/jori.12143
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    Cited by:

    1. Xin Che & Stephen G. Fier & Andre P. Liebenberg, 2019. "The effect of predation risk on cash holdings: Empirical evidence from the U.S. property‐liability insurance industry," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(3), pages 329-358, September.
    2. Courtney B. Baggett & Cassandra R. Cole, 2023. "Insurance groups, product diversification, and the role of surplus lines affiliation," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 26(1), pages 35-56, March.
    3. Sunghan Bae & Andre P. Liebenberg & Ivonne A. Liebenberg, 2023. "Equity Investment Decisions of Operating Firms: Evidence from Property and Liability Insurers," JRFM, MDPI, vol. 16(4), pages 1-24, April.
    4. Janet Gao & Shan Ge & Lawrence D. W. Schmidt & Cristina Tello-Trillo, 2023. "How Do Health Insurance Costs Affect Firm Labor Composition and Technology Investment?," Working Papers 23-47, Center for Economic Studies, U.S. Census Bureau.
    5. Greg Niehaus & Jannes Rauch & Sabine Wende, 2019. "Regulation and the connectedness of insurers to the banking sector: International evidence," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(4), pages 393-420, December.
    6. Hsiao, Ching-Yuan & Shiu, Yung-Ming, 2023. "Risk-sharing function in internal capital markets: Evidence from intragroup reinsurance activities," International Review of Financial Analysis, Elsevier, vol. 87(C).
    7. Ching-Yuan Hsiao & Yung-Ming Shiu, 2019. "The effects of business mix on internal and external reinsurance usage," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(4), pages 624-652, October.
    8. Suha Alawi, 2019. "Relationship between Capital Requirement, Ownership Structure, and Financial Performance in Saudi Arabian Listed Companies," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(9), pages 1077-1090, September.

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