Underwriting and Investment Risks in the Property-Liability Insurance Industry: Evidence Prior to the 9-11 Event

38 Pages Posted: 30 Oct 2010 Last revised: 30 Sep 2013

See all articles by Hong Zou

Hong Zou

The University of Hong Kong - Faculty of Business and Economics

Min-Ming Wen

affiliation not provided to SSRN

Charles C. Yang

Florida Atlantic University

Mulong Wang

University of Texas at Austin

Date Written: October 30, 2010

Abstract

Underwriting and investment are two important and related business activities of insurance companies. However, studies on the interrelation between underwriting and investment risks of Property-Liability (P-L) insurance companies are sparse in the literature. Using a sample of U.S. P-L insurers, this article conducts an empirical investigation of how these two risks are associated with each other in the 1994-2000 period (before the September 11th terrorist attack in 2001). Our results, robust to various estimations, suggest that there is no significant relationship between the underwriting and investment risks among our sample firms. Such results based on pre 9-11 event period provide some support for the conjecture of Achleitner et al. (2002) that many insurance companies may have failed to take an integrated approach to risk management and so suffered a heavy loss due to dual exposures in both underwriting and investment in the 9-11 event. In the aftermath of the recent global financial crisis, risk taking and risk management of financial institutions have received more attention and increasing scrutiny. We believe the current paper provides some useful insights in this vein.

Suggested Citation

Zou, Hong and Wen, Min-Ming and Yang, Charles C. and Wang, Mulong, Underwriting and Investment Risks in the Property-Liability Insurance Industry: Evidence Prior to the 9-11 Event (October 30, 2010). Review of Quantitative Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1700104

Hong Zou (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

China

Min-Ming Wen

affiliation not provided to SSRN ( email )

Charles C. Yang

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States

Mulong Wang

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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