IDEAS home Printed from
   My bibliography  Save this article

Risk-Based Capital and Firm Risk Taking in Property-Liability Insurance


  • Jiang Cheng

    () (School of Finance, Shanghai University of Finance and Economics, 777 Guoding Road, Tongde Building 317, Shanghai 200433, China.)

  • Mary A Weiss

    (Risk, Insurance & Healthcare Management Department, Fox School of Business, 1801 Liacouras Walk 6th Floor (006-07), Temple University, Philadelphia, PA 19122, U.S.A.)


This research investigates the relationship between capital and risk in property-liability insurers from 1993 to 2007. Three-stage least squares estimation is used to investigate the relationship between capital and two types of risk: underwriting and asset risk. Overall the results suggest that risk and capital are positively related, so that capital increases are associated with increases in investment and underwriting risk. This positive relationship was not consistently significant in 1993, prior to the implementation of risk-based capital (RBC) requirements. Both under-capitalised insurers and marginally adequately capitalised insurers adjusted their capital and risk towards firm targets at a higher speed than well-capitalised insurers in the post-RBC period. But underwriting and asset risk also increased for less well-capitalised insurers.

Suggested Citation

  • Jiang Cheng & Mary A Weiss, 2013. "Risk-Based Capital and Firm Risk Taking in Property-Liability Insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 38(2), pages 274-307, April.
  • Handle: RePEc:pal:gpprii:v:38:y:2013:i:2:p:274-307

    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:38:y:2013:i:2:p:274-307. 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.