An Investigation of Market Concentration and Financial Stability in Property–Liability Insurance Industry

31 Pages Posted: 15 May 2017

See all articles by Jeungbo Shim

Jeungbo Shim

Illinois Wesleyan University

Date Written: June 2017

Abstract

The article investigates whether the market concentration is associated with an insurer's financial stability in the U.S. property–liability insurance industry over the period 1992–2010. We employ two‐stage least squares techniques with instrumental variables to address likely endogeneity problems. The results show that higher market concentration is associated with lower financial stability of insurance firms, consistent with the “concentration‐fragility” view. Our results indicate that firm‐specific characteristics including firm size, underwriting leverage, organizational form, product and geographical diversification, along with the exposure to natural catastrophes and macroeconomic conditions are important determinants in ensuring a safe and sound insurance system. Robustness tests using various estimation methods and alternative measures of financial stability present consistent results.

Suggested Citation

Shim, Jeungbo, An Investigation of Market Concentration and Financial Stability in Property–Liability Insurance Industry (June 2017). Journal of Risk and Insurance, Vol. 84, Issue 2, pp. 567-597, 2017, Available at SSRN: https://ssrn.com/abstract=2967609 or http://dx.doi.org/10.1111/jori.12091

Jeungbo Shim (Contact Author)

Illinois Wesleyan University ( email )

P.O. Box 2900
Bloomington, IL 61702-2900
United States

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