Determinants of Diversification for Non-Life Insurance Companies in Spain
49 Pages Posted: 16 Jun 2016
Date Written: June 3, 2016
This paper provides evidence on the determinants of the diversification status as well as the extent of diversification for Spanish non-life insurers in the period 2000-2007. Operating efficiency, risk pooling, internal capital markets, conflict of interests and external markets control are the sources of benefits and costs in diversification decisions by insurers that we evaluate. The examination also takes into consideration that mutuals and stocks coexist in the industry, each one with different potential agency costs acting as different constraints in the wealth maximization that should guide the diversification decisions. Results suggest that the search for operating efficiency arises as a key factor in diversification decisions. Organizational form does matter when trying to explain the extent of diversification since we find that risk pooling through the expansion into new business lines provides an additional incentive for mutual insurers to adopt a higher level of diversification.
Keywords: product diversification, non-life insurance, Spanish insurance industry, organizational form
JEL Classification: G22, L25
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