Enterprise Risk Management and Diversification Effects for Property and Casualty Insurance Companies

37 Pages Posted: 8 Apr 2014

See all articles by Jing Ai

Jing Ai

University of Hawaii at Manoa - Shidler College of Business

Vickie L. Bajtelsmit

Colorado State University, Fort Collins

Tianyang Wang

Colorado State University - Department of Finance & Real Estate

Date Written: April 8, 2014

Abstract

In a well-designed enterprise risk management (ERM) program, the firm integrates risk management into the strategic planning process, addressing strategic risk, financial risk, operational risk, and hazard risk under a single overarching process. This is particularly important to large financial firms, such as property and casualty (P&C) insurers, which face a diverse set of risks. We find that ERM quality, as measured by S&P ERM ratings from 2006-2012, has a strong positive affect on ROA and Tobin’s Q for P&C insurers. In contrast to previous studies that have found that diversified firms suffer a value discount relative to their more focused peers, the results of this study suggest that, after controlling for ERM quality, business line diversification is associated with a performance premium whereas geographic diversification is not a significant factor.

Keywords: erprise Risk Management (ERM), Diversification Effect, Property and Casualty, Insurance Company Performance

JEL Classification: G13, G14

Suggested Citation

Ai, Jing and Bajtelsmit, Vickie L. and Wang, Tianyang, Enterprise Risk Management and Diversification Effects for Property and Casualty Insurance Companies (April 8, 2014). Available at SSRN: https://ssrn.com/abstract=2422452 or http://dx.doi.org/10.2139/ssrn.2422452

Jing Ai

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States

Vickie L. Bajtelsmit (Contact Author)

Colorado State University, Fort Collins ( email )

Fort Collins, CO 80523-1771
United States

Tianyang Wang

Colorado State University - Department of Finance & Real Estate ( email )

Finance and Real Estate Department
1272 Campus Delivery
Fort Collins, CO 80523
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
321
Abstract Views
1,438
rank
95,291
PlumX Metrics