Financing Risk Transfer under Governance Problems: Mutual versus Stock Insurers

39 Pages Posted: 16 Jun 2006 Last revised: 4 Sep 2009

See all articles by Christian Laux

Christian Laux

Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF); European Corporate Governance Institute (ECGI)

Alexander Muermann

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

Date Written: June 16, 2009

Abstract

Mutual insurance companies and stock insurance companies are different forms of organized risk sharing: policyholders and owners are two distinct groups in a stock insurer, while they are one and the same in a mutual. This distinction is relevant to raising capital and selling policies in the presence of frictional cost of capital. Free-rider and commitment problems in a stock insurer limit shareholders' compensation for the frictional cost and therefore the level of capital that can be raised. By tying sales of policies to the provision of capital, the mutual form can overcome these problems at the cost of less diversified owners.

Keywords: ownership structure, insurance, owner-manager conflict, capital, default

JEL Classification: G22, G32

Suggested Citation

Laux, Christian and Muermann, Alexander, Financing Risk Transfer under Governance Problems: Mutual versus Stock Insurers (June 16, 2009). Available at SSRN: https://ssrn.com/abstract=908860 or http://dx.doi.org/10.2139/ssrn.908860

Christian Laux

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Alexander Muermann (Contact Author)

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria
+43 1 31336 4948 (Phone)
+43 1 31336 90 4948 (Fax)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
221
Abstract Views
1,928
rank
167,823
PlumX Metrics