The Effect of Risk Governance in the Insurance Sector During the Financial Crisis - Empirical Evidence from an International Sample

51 Pages Posted: 18 Aug 2014

See all articles by Shane Magee

Shane Magee

Macquarie University Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

C. Schilling

Technische Universität München (TUM) - Chair of Mathematical Finance

Elizabeth A. Sheedy

Macquarie University Department of Applied Finance; Financial Research Network (FIRN); Macquarie University, Macquarie Business School

Date Written: August 18, 2014

Abstract

In this study, we analyze the relation between risk governance and risk and performance measures for a global sample of 107 insurance companies from 2004 to 2012. Our risk governance index covers several Solvency II provisions and includes the existence of chief risk officer on the executive board, risk committee characteristics and board industry experience. We find that, in general, during the asset meltdown phase in 2008, firms with a higher risk governance index have lower tail risk and lower expected default frequency (Moody’s EDF). Controlling for time-invariant heterogeneity across firms using a fixed effects approach, we identify that during our sample period risk governance does not have a risk-reducing effect in general but is positively associated with risk-adjusted performance measures and Tobin’s Q. Our findings challenge the notion that risk governance is typically risk reducing but rather support the role of risk governance as a business enabler. During our sample period risk governance increased and our findings should encourage insurers to continue enforcing their group wide risk governance structures.

Keywords: Risk Governance, Global Insurance Firms, Financial Crisis

JEL Classification: G22, M10

Suggested Citation

Magee, Shane and Schilling, C. and Sheedy, Elizabeth A., The Effect of Risk Governance in the Insurance Sector During the Financial Crisis - Empirical Evidence from an International Sample (August 18, 2014). 27th Australasian Finance and Banking Conference 2014 Paper. Available at SSRN: https://ssrn.com/abstract=2482168 or http://dx.doi.org/10.2139/ssrn.2482168

Shane Magee

Macquarie University Department of Applied Finance and Actuarial Studies ( email )

Room 732, Building E4A
Macquarie University
North Ryde, NSW, 2109
Australia
61-2-9850-9947 (Phone)

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

C. Schilling

Technische Universität München (TUM) - Chair of Mathematical Finance

Parkring 11
Garching-Hochbrueck, 85748
Germany

Elizabeth A. Sheedy (Contact Author)

Macquarie University Department of Applied Finance ( email )

Room 739, 4 Eastern Road
Macquarie University
North Ryde, NSW 2109
Australia
61-2-9850 7755 (Phone)
61-2-9850 7281 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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