Determinanten der Liquidität in der deutschen Schaden- und Unfallversicherungsindustrie: Bedeutung,Erklärungskraft und Auswirkung der Finanzkrise

The aim of this paper is to analyze the corporate liquidity and its determinants for the German property-liability insurance industry using company-level data for the period 2002–2014. We first investigate the differences in cash holdings across insurers. We then quantify the relative importance of firm-level determinants compared with macroeconomic determinants in explaining insurers’ cash holding choices. In addition, we examine whether the financial crisis of 2008 has an impact on the liquidity situation of insurers. Our results indicate that cash holdings vary significantly across German property-liability insurers. The firm-level determinants size, group affiliation and reinsurance utilization explain more than 50% of the variation. We also find that macroeconomic conditions appear to have negligible effects on the liquidity situation of insurers. In addition, we do not find evidence that the liquidity of German property-liability insurers is influenced by the financial crisis of 2008. The proportion of cash remains relatively stable at 6% of the total assets.     

The Determinants of Private Debt Holdings: Evidence From the Life Insurance Industry

Life insurers hold the majority of private debt. Lenders in the private debt market must have the ability to evaluate the credit quality of borrowers and to perform ongoing risk monitoring. The purpose of this study is to examine the determinants of private debt holdings in the life insurance industry. The results suggest that larger insurers, insurers with higher financial quality, mutual insurers, publicly traded insurers, insurers facing stringent regulation, and insurers with greater cash holdings are more prevalent lenders in the private debt market.     

西方险企投资在金融危机中的整体表现及原因探析

保险资金投资组合整体上受本轮危机冲击不大,其中美国寿险公司通用账户的整体表现最好。其原因有:险资对次贷关联资产风险暴露十分有限且各类安全性指标出淤泥而不染;对受牵连的高风险资产,险资配置股权比例也低且私募股权账面值不受股指下跌拖累;债券方面,风险溢价上升与基准利率下调产生抵消作用,国企债在很多险资企业债中占上风。主要启示包括:险资资产配置要与波动性承受能力相适应,尤其主力资产要坚守传统安全资产、系统重要性资产。     

The effect of predation risk on cash holdings: Empirical evidence from the U.S. property‐liability insurance industry

Corporate cash holdings play a significant role in the U.S. property‐liability insurance industry yet the topic of insurer cash holdings policy has largely been overlooked by prior empirical research. While a number of studies have investigated firm‐specific factors related to cash holdings in the insurance industry, prior research has not examined how market concentration and potential predation risk impact cash holdings. We propose a new measure of market concentration and provide evidence in support of the predation risk theory. Specifically, we show that insurers exposed to more concentrated markets tend to hold more cash. Furthermore, the relation between market concentration and cash holdings is influenced by access to internal capital. While unaffiliated insurers without access to internal capital hold greater levels of cash in more concentrated markets, group insurers with access to internal capital do not hold greater levels of cash to mitigate predation risk.     

Cash holdings between public and private insurers ‒ a partial adjustment approach

Cash holdings of financial institutions, especially private firms, have been understudied in existing literature. This paper fills that gap by examining the cash holdings of US property-liability insurers in order to analyze the difference in cash holdings and cash adjustments between public and private stock insurers and between mutual and stock insurers within the private insurer category. We find that public insurers hold much less cash than private stock insurers, which differs from the findings for non-financial firms. Additionally, we find that mutual insurers hold less cash than private stock insurers. Public insurers adjust their cash holdings much faster toward their target cash levels than private stock insurers do when facing an extreme cash shortfall, but their adjustment speed is indifferent from that of private stock insurers when both having excess cash. Mutual insurers are able to adjust cash holdings slightly faster than private stock insurers when there is an extreme cash shortfall but are indifferent in adjustment speed from private stock insurers when having excess cash in hand. Overall, our results are more consistent with the financing frictions hypothesis of cash holdings and are inconsistent with the owner-manager agency problems of free cash flow.     

Value Creation in the Insurance Industry

Using the insights of current research in corporate finance and financial institutions, the authors briefly present a consistent economic framework for looking at insurance. Shareholders of insurance companies provide risk capital that is invested in financial assets and therefore earns the market return of the assets it is invested in. However, due to the legal and fiscal environment insurance companies are in, they have a competitive disadvantage at investing, and this gives rise to frictional capital costs. The core competence of insurers is in managing the size of these frictional capital costs. Insurers must ensure that they can sell insurance for a price in excess of what they need to produce the cover they sell and compensate the incurred frictional costs on risk capital. It is through the ability to do so that insurers create shareholder value.     

Is Historical Cost Accounting a Panacea? Market Stress,Incentive Distortions,and Gains Trading

Accounting rules, through their interactions with capital regulations, affect financial institutions’ trading behavior. The insurance industry provides a laboratory to explore these interactions: life insurers have greater flexibility than property and casualty insurers to hold speculative‐grade assets at historical cost, and the degree to which life insurers recognize market values differs across U.S. states. During the financial crisis, insurers facing a lesser degree of market value recognition are less likely to sell downgraded asset‐backed securities. To improve their capital positions, these insurers disproportionately resort to gains trading, selectively selling otherwise unrelated bonds with high unrealized gains, transmitting shocks across markets.     

Corporate Insurance and Debt: The Case of China*

Finance theorists have long argued that corporate purchases of property insurance can reduce the probability and hence the expected costs of financial distress. And by so doing, the corporate use of insurance can reduce borrowing costs and/ or increase debt capacity, reduce the overall cost of capital, and increase firm value. This article attempts to apply this argument to the case of publicly traded companies in China, which provides a particularly interesting environment given the significant presence of both foreign direct investment and state shareholdings in its corporate sector. From their study of several hundred Chinese companies during the period 1997‐2003, the authors report the following conclusions: Companies with higher borrower costs tend to purchase more property insurance, which in turn has the effect of increasing their debt capacity. Smaller companies are more likely than larger firms both to insure their assets and to purchase more property insurance (as a percentage of assets), reflecting their greater vulnerability to financial shocks and larger potential benefit from insurers' real advisory services (such as loss prevention advice). Companies with more and larger growth opportunities are more likely to purchase insurance, reflecting their higher expected costs of financial distress (from possible underinvestment) than firms with limited growth opportunities. Companies with higher levels of state ownership tend to insure their assets to a greater extent, suggesting that the managers of such companies insure to protect their job security, particularly as the availability of state subsidies to the Chinese corporate sector has declined since market reforms were initiated in 1978.     

中国的“影子保险”:来自监管自然实验的证据

影子保险在金融稳定中扮演着重要角色,但现有文献较多关注影子银行,对影子保险关注不足。“影子保险”即保险公司通过再保险方式将保险业务转移给不受监管或者受监管较弱的关联企业的活动,这会推高其真实的杠杆水平,增加金融体系脆弱性。然而,由于影子保险的不透明性和缺少自然实验,现有研究仅基于有限数据或模型给出简单的特征事实或结构性估计,很少能从因果关系上清楚地识别影子保险活动及其机制。本文利用中国加强对中资保险公司(处理组)再保险关联交易监管的政策冲击这一自然实验,使用微观数据和双重差分方法,识别了中国金融体系中的影子保险活动。研究发现,相关监管有效降低了影子保险活动,这一效应对集团公司的影响尤为显著;在机制方面,相关监管通过影响中资保险公司资产负债表两端的结构性调整进而降低了其风险承担行为,提高了经营稳定性。本文方法对识别金融机构的监管套利和防范系统性金融风险具有一定参考意义。     

The Impact of Large Portfolio Insurers on Asset Prices

We develop a simple model in which the presence of portfolio insurers in a market of risk-averse traders leads to multiple equilibria for the pricing of financial assets and can cause an increase in volatility, including insurance-induced price drops. We demonstrate, however, that centralized portfolio insurance firms may actually reduce, not increase, volatility, even if the existence of these firms increases the total amount of funds under insurance.     

Grenzen zulässiger Kapitalanlagestrategien deutscher Lebensversicherer

The article focuses on two questions related to the financial supervision of German life insurers. German insurers are not allowed to invest more than 30% (35 % from Jan. 1st, 2002) of their assets covering the technical provisions in stocks. First, it has been elaborated that this fixed limitation of stock investments is inconsistent with a risk-related asset allocation. Life insurers should observe the recognitions of the capital market theory as do all other investors. Basically, fixed liabilities have to be covered safely, i. e. with bonds. Not withstanding this, fixed liabilities may be covered with stocks if the losses which may occur due to the volatility of the capital markets can be equalized through the dissolution of hidden reserves (which is a phenomenon arising from the German accounting standards). Since the hidden reserves differ from insurer to insurer the regulation of stock investments is recommended to be carried out individually. The British solution has been introduced as an example for an individual regulation of the stock / bond-ratio. Secondly, the differentiation between the German technical provisions and free assets is also partly inconsistent with a risk-related asset allocation. The free assets cover liabilities to the amount of the terminal bonus reserve, which have to be covered safely with bonds. Nevertheless, even today a with-bonus life insurance contract investing more in stocks than in bonds can be offered. In this case, fixed liabilities should be prevented by a low guaranteed interest rate and a high and variable terminal bonus.     

Organizational Structure and Performance: Evidence From the Nonlife Insurance Industry in Japan

This study examines the impact of organizational structure on firm performance, incentive problems, and financial decisions in the Japanese nonlife (property‐casualty) insurance industry. Stock companies that belong to one of six horizontal keiretsu groups have lower expenses and lower levels of free cash flow than independent stock and mutual insurance companies. Keiretsu insurers also have higher profitability and higher loss ratios than independent insurers. With a limited sample size, there is some evidence that mutual insurers have higher levels of free cash flows, higher investment incomes, and lower financial leverage than their stock counterparts. Overall, empirical evidence suggests that each structure has its own comparative advantage.     

美国保险人财务危机处置制度对我国的启示

本文探讨的主旨在于研究美国保险监管机构处置面临财务危机的保险人的制度体系以及对国内相关制度的启示。通过介绍分析美国保险监督官协会制定的示范法以及据此订立的爱荷华州相关的法律,对督导、接管、重整以及清算这四种处置保险人财务危机的程序制度进行了系统的分析,并对保险保障基金以及抵消这两个在清算程序中至关重要的问题进行了探讨。通过对美国这一制度的具体分析,为国内的比较研究和实践立法提供有益的参考。     

Regulatory capital and asset risk transfer

We explore whether life insurers use a unique reinsurance arrangement to manage assets tied to their regulatory capital. Typical reinsurance allows insurers to reduce their regulatory capital by transferring liabilities (reserves), and the associated assets, to reinsurers. With modified coinsurance (ModCo), insurers maintain control of their liabilities and assets while transferring regulatory capital requirements to the reinsurer. Holding fixed an insurer's reported capital, we find that ModCo allows insurers to report higher risk-based capital ratios. Insurers with ModCo are less likely to fire sale downgraded bonds. We also find suggestive evidence of regulatory arbitrage, as most ModCo is purchased from reinsurers in countries with low capital requirements or within the same insurance group.     

Mergers &; Acquisitions,Diversification and Performance in the U.S. Property-Liability Insurance Industry

This paper examines the relationship between mergers & acquisitions (M & As), diversification and financial performance in the U.S. property-liability insurance industry over the period 1989–2004. The risk-adjusted return on assets (ROA), return on equity (ROE), Z-score and total risk measured by earnings volatility are considered as a relevant indicator of performance. We find that acquirers’ financial performance decreases and earnings volatility increases during the gestation period after the M & As perhaps due to increased frictional costs associated with post-merger integration and agency problems. We find that more focused insurers outperform the product-diversified insurers, implying that the costs of diversification outweigh the benefits. These findings are robust to alternative risk and diversification measures. We also find that marginal increases in commercial line share are associated with higher risk-adjusted profits, but these gains are offset by the extra costs from product diversity when its initial share is low. For insurers initially concentrated in commercial line, a marginal increase in commercial line share is related to higher performance due to positive effects of both direct exposure and indirect focus.     

Estimating the Cost of Equity for Property-Liability Insurance Companies

Due to the highly skewed and heavy‐tailed distributions associated with the insurance claims process, we evaluate the Rubinstein‐Leland (RL) model for its ability to improve the cost of equity estimates of insurance companies because of its distribution‐free feature. Our analyses show that there is as large as a 94‐basis‐point difference in the estimated cost of insurance equity between the RL model and the capital asset pricing model (CAPM) for the sample of property‐liability insurers with more severe departures from normality. In addition, consistent with our hypotheses, significant differences in the market risk estimates are found for insurers with return distributions that are asymmetrically distributed, and for small insurers. Third, we find significant performance improvements from using the RL model by showing smaller values of excess return of the expected return of the portfolio to the model return for a portfolio of insurers with returns that are more skewed and for a portfolio of small insurers. Finally, our panel data analysis shows the differences in the market risk estimates are significantly influenced by firm size, degree of leverage, and degree of asymmetry. The implication is that insurers should use the RL model rather than the CAPM to estimate its cost of capital if the insurer is small (assets size is less than $2,291 million), and/or its returns are not symmetrical (the value of skewness is greater than 0.509 or less than ?0.509).     

Neue Wege in der Kapitalanlage: Die Symbiose zwischen Banken und Versicherungen im Bereich der ‚Alternative Assets‘

The current low interest rates pose a major challenge in particular for life insurers. The introduction of Basel III in the banking and Solvency II in the insurance sector will have major impacts on both industries. This paper provides insight into possible products supplied by banks, which offer the possibility for life insurers to invest in ‘alternative assets’, especially in infrastructure projects. The focus lies on investments in infrastructure loans. If these are placed in a SPV, which itself emits bonds, the lowest amount of regulatory equity capital for both, the bank and the insurance company is required.     

Does Reinsurance Need Reinsurers?

The reinsurance market is the secondary market for insurance risks. It has a very specific organization. Direct insurers rarely trade risks with each other. Rather, they cede part of their primary risks to specialized professional reinsurers who have no primary business. This article offers a model of equilibrium in reinsurance and capital markets in which professional reinsurers arise endogenously. Their role is to monitor primary insurers credibly, so that insurers can raise capital more easily. In equilibrium, the financial structure of primary insurers consists of a mix of reinsurance and outside capital. The comparative statics yield empirical predictions which are broadly in line with a number of stylized facts from the reinsurance market.     

Determinants of Financial Distress Costs

This paper provides international evidence on financial distress costs. To achieve this aim, we have developed a model where financial distress costs are determined, on the one hand, by making use of a more accurate indicator of the probability of financial distress and, on the other, by a set of variables that, according to financial theory, explain the magnitude of the costs borne by a firm in the case of financial distress. Our results reveal the relevance of our improved indicator of the probability of financial distress, since it positively affects financial distress costs in all the countries analyzed. Furthermore, since our model controls for the probability of financial distress, we can test the trade-off between the benefits and costs of debt. This allows us to verify that the benefits debt outweigh the costs. Our results also indicate that distress costs are negatively related to liquid assets; hence, their benefits more than offset their opportunity costs.     

On the exposure of insurance companies to sovereign risk—Portfolio investments and market forces

A sovereign debt crisis can have significant knock-on effects in the financial markets and put financial stability at risk. This paper focuses on the transmission of sovereign risk to insurance companies as some of the largest institutional investors in the sovereign bond market. We use a firm level panel dataset that covers large insurance companies, banks and non-financial firms from nine countries over the time period from 1 January 2008–1 May 2013. We find significant and robust transmission effects from sovereign risk to domestic insurers. The impact on insurers is not significantly different from that on banks but larger than for non-financial firms. We find that systemically important insurers are more closely linked to the domestic sovereign. Based on European data, we show that risks in sovereign bond portfolios are an important driver of insurer risk, which is not reflected in current insurance regulation (incl. Solvency II in Europe).