The Relations among Organizational and Distribution Forms and Capital and Asset Risk Structures in the Life Insurance Industry

This article is the first step toward integrating in a single framework two previously separate lines of research on major structural decisions of life insurers. The literature has previously studied the relation between capital structure and asset risk on the one hand, and the relation between organizational form and distribution system on the other hand, without integrating them. Using life insurer data for 1993–1999, we model the four key insurer decisions of capital structure, asset risk, organizational form, and distribution system as endogenous choices in a single interrelated set of simultaneous equations. The model assesses the nature of the interactions among these decisions. The model also assesses the impact of insurers' fundamental business strategy (treated as predetermined) on these choices. The business‐strategy hypothesis views other key decisions as jointly determined and driven by the fundamental business strategy, once the latter is set in motion. Confirming previous studies, we find a positive relation between capital ratios and asset risk. We also find an association in the simultaneous context between stock ownership and brokerage distribution, which was not found in prior studies. Stock ownership is related to greater financial and asset risk taking, whereas brokerage distribution is associated with lower risk taking. These and other results are interpreted in light of several theories, including transaction‐cost economics (TCE), agency theory, and regulatory and bankruptcy cost avoidance. Deriving from these theories, the finite risk paradigm emerges as the most comprehensive interpretation of the results, as opposed to the risk‐subsidy hypothesis of the impact of guarantee funds. We also find support for the notion that the business strategy drives the capital and distribution decisions, as predicted by TCE.     

John E. Murray. Origins of American Health Insurance: A History of Industrial Sickness Funds

John E. Murray's Origins of American Health Insurance concernsa little-known precursor to commercial health insurance, the"industrial sickness funds" of the book's subtitle. This well-researchedbook makes a compelling case for the importance of these fundsin shaping the American health insurance system as we know it.Murray argues that the success of sickness funds during theearly twentieth century helps to explain why European-styleuniversal health insurance does not exist in the United States. In 1915, industrial sickness funds     

The Risk Balls Game: Transforming Risk and Insurance Into Tangible Concepts

The Risk Balls game is used as a game in an introductory insurance course to demonstrate in a tangible way the notion of risk and its relationship to insurance. Through playing with the ``risk balls,' each one representing a different type of risk, the students experience feelings of anxiety about risk, and later, the sense of anxiety reduction when they transfer the risk balls to insurers. The game incorporates complex concepts of risk transfer and risk reduction via pooling and sharing of risk. The mathematical implications of the law of large numbers are physically felt in the classroom when the students experience the relief associated with transferring the risk balls to insurers. The discussion that ensues during the game includes aspects of the underwriting process; moral hazard; adverse selection; the role of agents, insurers, and regulators; and the nature of the insurance contract. The game of risk balls stimulates lively group discussions and provides hands-on experience with risks such as premature death risk or fire risk and the fears associated with them.     

Capital and Risk Revisited: A Structural Equation Model Approach for Life Insurers

The role of risk in the capital structure decision of firms is a vast topic in finance. Commonly, models of the interrelationship between risk and capital enumerate as many risk factors as possible by appropriate proxies, with the goal of detailing their individual effects. In this study of the life insurance industry for 1994 through 2000, we take a broader, holistic view of enterprise risk, identifying two groups of insurer risk factors that arise from the major activities of life insurers: investing and underwriting. We call the group of risk factors associated with investing asset risk, and the group associated with underwriting product risk. After specifying other important determinants of capital structure as controls, we allow all other risk factors to find expression in residual error. Within this framework, our focus is to compare two candidate measures for the role of proxy for asset‐related risks. One measure, called regulatory asset risk (RAR), derives from the regulatory tradition of concern with solvency and is related to the C‐1 component of risk‐based capital. The other measure, called opportunity asset risk (OAR), is motivated by traditional finance concerns with market risk and reflects volatility of returns. Product‐related risks are proxied by underwriting exposures in different product lines. We employ structural equation modeling (SEM), which uses longitudinal factor analysis. SEM is an innovative technique for such studies, in dealing effectively with multiple structural equations, autocorrelated panel data, unobserved underlying factors, and other issues that are not simultaneously addressed in other methodologies. We find that RAR and OAR are not equivalent proxies for asset risks. Although overlapping to some extent, each illuminates different aspects of the asset risk–capital interrelationship. In particular, RAR does not seem to affect the capital structure decision of small firms, although OAR does. We interpret this to suggest that small firms as a whole are not as sensitive in their capital decisions to the proxy of regulatory concerns as to the proxy of market opportunity. This contrasts with large insurers, for whom both RAR and OAR have significant effects on capital that comport with the finite risk hypothesis. More detailed analysis suggests that the lack of effect of RAR for small insurers may result from RAR's proxying some factors that induce finite risk for part of the small insurer sample, and other factors that favor the excessive risk hypothesis.     

Exploring safety impacts of pedestrian-crossing configurations at signalized junctions on urban roads with public transport routes

This study explored the impacts of pedestrian-crossing configurations and other design features, on accident occurrences at signalized junctions situated on central public transport routes (PTRs) of urban arterials. Statistical tests and negative-binomial regression models were applied to identify factors affecting accidents and to examine accident numbers of the PTR junctions as opposed to comparison-sites. At the PTR junctions, a consistent impact of pedestrian-crossing configurations on accidents was found, where a gradated-crossing with mixed-shifting is the least safe. Four-legged junctions tend to higher accident numbers relative to the three-legged junctions. PTR junctions are characterized by higher accident numbers, related to comparison-sites, when controlling for other design characteristics. The study findings may assist in selecting preferable design solutions while planning PTR.     

Modelling nature-based tourism impacts on rural development and conservation in Sikunga Conservancy,Namibia

Community-based natural resource management and nature-based tourism often go hand in hand to drive conservation and economic development in sub-Saharan Africa. However, the complementarity of the two strategies is controversially discussed in the literature. Built on survey data from 200 households conducted in 2012 we analysed the trade-off between conservation and development objectives by means of a mathematical programming model representing the economy of a rural conservancy in Namibia. We found that in the scenario describing unrestricted resource extraction, local communities mainly benefit from fishing and utilising forest products. In comparison, the scenario representing the social optimum, implying sustainably managed fish stocks and appropriate diets for community inhabitants, shows that community households increase agricultural diversification and shift livelihoods towards tourism employment.     

Robin Pearson. Insuring the Industrial Revolution: Fire Insurance in Great Britain, 1700-1850. Aldershot, U.K.: Ashgate, 2004. xiii + 434 pp. ISBN 0-7546-336302, $99.95 (cloth).

Robin Pearson’s Insuring the Industrial Revolution providesa richly detailed account of the British fire insurance industrythrough the mid-nineteenth century. Whereas most previous accountshave focused on single companies, Pearson’s study encompassesthe entire industry of London and provincial firms and seeksto place the industry within the larger context of British economichistory. British economic historians have long overlooked the contributionof insurance, and service industries in general, to the nation’seconomic