Opaque Liabilities, Learning, and the Cost of Equity Capital for Insurers

Journal of Risk and Insurance, Forthcoming

69 Pages Posted: 4 Dec 2017 Last revised: 30 Jun 2022

See all articles by Chia-Chun Chiang

Chia-Chun Chiang

University of Texas at El Paso - College of Business Administration

Hugh Hoikwang Kim

University of South Carolina, Darla Moore School of Business

Greg Niehaus

University of South Carolina - Darla Moore School of Business

Date Written: February 1, 2019

Abstract

Analyzing major U.S. property-liability insurers, we find that their cost of equity capital is negatively associated with their underwriting performance, but not with their investment performance. We provide cross-sectional evidence that the difference is attributable, at least in part, to investor learning about opaque insurer liabilities. We also find that capital market and product market imperfections are important determinants of insurers’ cost of equity capital. Overall, our evidence contributes to the important literature examining insurers’ cost of equity capital, and it suggests that opaque liabilities are a distinguishing feature of insurers in determining their cost of equity capital.

Keywords: insurer underwriting performance, cost of equity capital, asset pricing, opacity

JEL Classification: G22, G12, G31

Suggested Citation

Chiang, Chia-Chun and Kim, Hugh Hoikwang and Niehaus, Greg, Opaque Liabilities, Learning, and the Cost of Equity Capital for Insurers (February 1, 2019). Journal of Risk and Insurance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3079920 or http://dx.doi.org/10.2139/ssrn.3079920

Chia-Chun Chiang

University of Texas at El Paso - College of Business Administration ( email )

University Library - Acquisitions Department
500 West University Avenue
El Paso, TX 79968
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Hugh Hoikwang Kim (Contact Author)

University of South Carolina, Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

Greg Niehaus

University of South Carolina - Darla Moore School of Business ( email )

College of Business Administration
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-7254 (Phone)
803-777-6876 (Fax)

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