The Merger or Insolvency Alternative in the Insurance Industry

J. OF RISK AND INSURANCE, Vol. 64 No. 1, March 1997

Posted: 10 Jun 1997

See all articles by Ran Barniv

Ran Barniv

Kent State University - Department of Accounting

John Hathorn

Kent State University - College of Business Administration

Abstract

The reasons for mergers and acquisitions in the insurance industry are usually not disclosed by regulators, investors, or managers. This study explicates that accounting and financial information can explain merger or insolvency decisions in the industry. The study emphasizes that a timely merger can serve as a viable alternative to insolvency. We perform a logit analysis of solvent and insolvent insurers to generate the probability of insolvency for each merged insurer. Timely mergers serve as an alternative to insolvency for 20 to 46 percent of the merged insurers, which is higher than that found in other industries. The study identifies attributes that distinguish merged distressed insurers from insolvent insurers. Investors in firms that acquire distressed insurers earn significant negative returns and earn significantly lower returns than investors in firms that sell distressed insurers.

JEL Classification: G22, G34

Suggested Citation

Barniv, Ran and Hathorn, John, The Merger or Insolvency Alternative in the Insurance Industry. J. OF RISK AND INSURANCE, Vol. 64 No. 1, March 1997, Available at SSRN: https://ssrn.com/abstract=8360

Ran Barniv (Contact Author)

Kent State University - Department of Accounting ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1112 (Phone)
330-672-2548 (Fax)

John Hathorn

Kent State University - College of Business Administration

Dept. of Accounting
Kent, OH 44242
United States

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