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The Impact of Product Diversification on Risk-taking Behavior in Property and Liability Insurance Firms

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  • Chen-Ying Lee

Abstract

This paper aims to analyze product diversification and risk taking behavior with a comprehensive look at the property-liability (P-L) insurance operations for a developing economic environment. Using a panel data to examine the impact of product diversification and risk taking behavior in Taiwanese P-L insurers. The study finds that product diversification is significantly negatively related to the risk taking behavior of P-L insurers, which implies that product diversification reduces the risk inherent in each business line and ultimately the overall portfolio risk. The results are consistent with the portfolio theory in finance. I find that firm growth, long-tail line and financial holdings have significant impacts on underwriting risk. Furthermore, the firm age, insurance leverage, long-tail line, ROI, and liquidity ratio have significant effects on leverage risk. The study provides some valuable insights into the effects of diversification and risk taking behavior of P-L insurers in a developing country as well as for the improvement of insurance regulation policy in Taiwan. JEL classification numbers: C23, G22, L25.Keywords: Risk-taking, Product diversification, Property-liability insurance.

Suggested Citation

  • Chen-Ying Lee, 2020. "The Impact of Product Diversification on Risk-taking Behavior in Property and Liability Insurance Firms," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(3), pages 1-9.
    • Handle: RePEc:spt:apfiba:v:10:y:2020:i:3:f:10_3_9
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    More about this item

    Keywords

    risk-taking; product diversification; property-liability insurance.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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