IDEAS home Printed from
   My bibliography  Save this article

Optimal Capital Structure for a Property-Liability Insurer


  • Stephen P D'Arcy

    () (Mihaylo College of Business and Economics, California State University Fullerton, 800 North State College Blvd, SGMH-5113, Fullerton, CA 92834-6848, U.S.A.)

  • Teresa Lwin

    () (Department of Finance, University of Chicago Booth School of Business, 5807 South Woodlawn Avenue, Chicago, IL 60637, U.S.A.)


Traditional finance studies have found that firm value is maximised at a mid-range level of leverage. This paper empirically tests the effect of leverage on firm value for property-liability insurers. We analysed an international data set of 96 insurers from 1992 to 2006 using two measures for firm value (price-to-earnings and market-to-book) and three measures of leverage (liabilities-to-equity, premiums-to-equity and surplus duration). We found that price-to-earnings at first increases with leverage, as measured by liabilities-to-equity and premiums-to-equity, but decreases past a certain point. Market-to-book exhibited a similar pattern for the premium-to-equity ratio but had a positive relationship with liabilities-to-equity and a negative relationship with surplus duration.

Suggested Citation

  • Stephen P D'Arcy & Teresa Lwin, 2012. "Optimal Capital Structure for a Property-Liability Insurer," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 37(3), pages 509-538, July.
  • Handle: RePEc:pal:gpprii:v:37:y:2012:i:3:p:509-538

    Download full text from publisher

    File URL:
    File Function: Link to full text PDF
    Download Restriction: Access to full text is restricted to subscribers.

    File URL:
    File Function: Link to full text HTML
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:gpprii:v:37:y:2012:i:3:p:509-538. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.