Title
Risk-based capital and firm risk taking in property-liability insurance
Document Type
Journal article
Source Publication
The Geneva Papers on Risk and Insurance : Issues and Practice
Publication Date
4-2013
Volume
38
Issue
2
First Page
274
Last Page
307
Publisher
Palgrave Macmillan Ltd.
Keywords
risk-based capital, regulatory effect, capital, risk
Abstract
This research investigates the relationship between capital and risk in property-liability insurers from 1993 to 2007. Three-stage least squares estimation is used to investigate the relationship between capital and two types of risk: underwriting and asset risk. Overall the results suggest that risk and capital are positively related, so that capital increases are associated with increases in investment and underwriting risk. This positive relationship was not consistently significant in 1993, prior to the implementation of risk-based capital (RBC) requirements. Both under-capitalised insurers and marginally adequately capitalised insurers adjusted their capital and risk towards firm targets at a higher speed than well-capitalised insurers in the post-RBC period. But underwriting and asset risk also increased for less well-capitalised insurers.
DOI
10.1057/gpp.2013.2
Print ISSN
10185895
E-ISSN
14680440
Funding Information
Financial support from the Scientific Research Foundation for the Returned Overseas Chinese Scholars (Grant #2012940) and the Specialized Research Fund for the Doctoral Program of Higher Education (New Teachers Grant #Z1025420) of the Ministry of Education of China. {2012940, Z1025420}
Publisher Statement
Copyright © 2013 The International Association for the Study of Insurance Economics
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Cheng, J., & Weiss, M. A. (2013). Risk-based capital and firm risk taking in property-liability insurance. The Geneva Papers on Risk and Insurance: Issues and Practice, 38(2), 274-307. doi: 10.1057/gpp.2013.2
