Date of Award

Spring 3-31-2014

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Risk Management and Insurance

First Advisor

Martin F. Grace

Second Advisor

George H. Zanjani

Third Advisor

Robert W. Klein

Fourth Advisor

Richard Luger

Fifth Advisor

William C. Bogner

Abstract

The goal of the first part of the dissertation is to explore the effects of the competition and market structure on the hedging strategies of companies within the property and liability insurance industry. Based on the available data (1989 to 2009), there is empirical evidence that insurers take competition and market structure into consideration in implementing their risk management policies. Market power, market positioning, diversification of lines and states, intensity of competition and the level of hedging in the industry all affect reinsurance purchase decisions. These results are robust under various econometric specifications.

The second part of the dissertation explores whether risk management adds value to the property and liability insurers. Moreover, it studies whether risk management adds value to insurance companies with good underwriting skills. Using the property and liability insurance data for the years 1989 to 2011, there is evidence that ceding a high proportion of the risks decreases profit efficiency of insurers in general. In addition, there is evidence that using a very high level of hedging does not prove to be profitable for the insurers with an underwriting edge.

Finally, the last part studies strategic similarities within the property and liability insurance industry from 1989 to 2011. I find nine common strategic groups during the stable strategic time periods. The levels of performance, risk management, and predation vary among the strategic groups. Some strategic groups exhibit unique patterns of risk management compared to the industry as a whole. Moreover, the positioning within strategic groups influences the insurers' risk management activities. In addition, I find relationships among insurers' risk management tools.

DOI

https://doi.org/10.57709/5530350

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