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Organizational Form and Insurance Company Performance: Stocks versus Mutuals

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  • Patricia Born
  • William M. Gentry
  • W. Kip Viscusi
  • Richard J. Zeckhauser

Abstract

One unusual feature of the U.S. property-casualty insurance industry is the coexistence of stock and mutual companies. This paper explores the performance of these forms in the industry through a dynamic assessment of how mutual and stock insurance companies respond to differences in their underwriting environment. Agency theories suggest that the stock company may be more 'opportunistic' and less obligated to their insureds than mutuals. This article assesses the responses by stock and mutual firms to changes in the underwriting environment from 1984 to 1991, using measures of individual firms' performance, by state and by line, in eight different lines of insurance. Stock companies are more likely than mutuals to reduce their business in unprofitable situations, and have higher losses than mutuals for a given amount of premiums.

Suggested Citation

  • Patricia Born & William M. Gentry & W. Kip Viscusi & Richard J. Zeckhauser, 1995. "Organizational Form and Insurance Company Performance: Stocks versus Mutuals," NBER Working Papers 5246, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5246 Note: CF IO
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    References listed on IDEAS

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    1. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-349, June.
    2. Richard J. Zeckhauser & John Pound, 1990. "Are Large Shareholders Effective Monitors? An Investigation of Share Ownership and Corporate Performance," NBER Chapters,in: Asymmetric Information, Corporate Finance, and Investment, pages 149-180 National Bureau of Economic Research, Inc.
    3. Benjamin E. Hermalin & Nancy E. Wallace, 1994. "The Determinants of Efficiency and Solvency in Savings and Loans," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 361-381, Autumn.
    4. Hansmann, Henry, 1985. "The Organization of Insurance Companies: Mutual versus Stock," Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 125-153, Spring.
    5. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    6. Lamm-Tennant, Joan & Starks, Laura T, 1993. "Stock versus Mutual Ownership Structures: The Risk Implications," The Journal of Business, University of Chicago Press, vol. 66(1), pages 29-46, January.
    7. Mayers, David & Smith, Clifford W, Jr, 1981. "Contractual Provisions, Organizational Structure, and Conflict Control in Insurance Markets," The Journal of Business, University of Chicago Press, vol. 54(3), pages 407-434, July.
    8. Cummins, J. David & Weiss, Mary A., 1993. "Measuring cost efficiency in the property-liability insurance industry," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 463-481, April.
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    Cited by:

    1. Patricia Born & W. Viscusi, 2006. "The catastrophic effects of natural disasters on insurance markets," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 55-72, September.
    2. Dwight M. Jaffee & Thomas Russell, 1996. "Catastrophe Insurance, Capital Markets and Uninsurable Risks," Center for Financial Institutions Working Papers 96-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Nekby, Lena, 2001. "Pure vs. Mutual Sick Insurance Societies. Evidence from Swedish Historical Data," Research Papers in Economics 2001:10, Stockholm University, Department of Economics.
    4. Fabrice Roth, 1998. "Structures de propriété, pouvoir discrétionnaire managérial et choix d'activité dans l'assurance dommages en France," Working Papers CREGO 0980301, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    5. J.Cook & S.Deakin & A.Hughes, 2001. "Mutuality and Corporate Governance: The Evolution of UK Building Societies Following Deregulation," Working Papers wp205, Centre for Business Research, University of Cambridge.

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