Capitalization of the Property-Liability Insurance Industry: Overview

Posted: 8 Mar 2003

See all articles by J David Cummins

J David Cummins

Temple University - Risk Management & Insurance & Actuarial Science

Neil A. Doherty

University of Pennsylvania - Insurance & Risk Management Department; University of Pennsylvania - Business & Public Policy Department

Abstract

The 1990s witnessed an unprecedented decline in leverage ratios in the United States property-liability insurance industry. The premiums-to-surplus ratio, the most commonly used leverage ratio in the industry, fell from its historical average of 2.0 to less than 1.0 by the end of 2000; and the industry-wide capital-to-asset ratio increased from an historical average of about 25% to 35%. The international reinsurance industry also experienced significant capital increases and leverage declines during the 1990s (Cummins and Weiss, 2000) These unusual trends raised widespread concerns that the property-liability insurance industry had become over-capitalized (The Economist, 1999; Bowers, 2001; Seifert, 2001). To investigate the growth in capitalization and its potential causes, the Conference on Capitalization in the Property-Liability Insurance Industry was held at the Wharton School in September 2000 under the joint sponsorship of the Wharton Financial Institutions Center and AON. Selected papers from the conference comprise this issue of the Journal of Financial Services Research (JFSR).

Keywords: Capital structure, property-liability insurance, organizational form, insolvency risk, financial ratings, efficiency

Suggested Citation

Cummins, J. David and Doherty, Neil A., Capitalization of the Property-Liability Insurance Industry: Overview. Journal of Financial Services Research, Vol. 21, No. 1 & 2, February/April 2002. Available at SSRN: https://ssrn.com/abstract=382870

J. David Cummins

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1801 Liacouras Walk.
Philadelphia, PA 19122
United States
215-204-8468 (Phone)
215-204-4712 (Fax)

Neil A. Doherty (Contact Author)

University of Pennsylvania - Insurance & Risk Management Department ( email )

Philadelphia, PA 19104-6365
United States
215-898-7652 (Phone)
215-898-0310 (Fax)

University of Pennsylvania - Business & Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States

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