Decomposing diversification effect: evidence from the U.S. property-liability insurance industry

  • Received March 25, 2017;
    Accepted May 16, 2017;
    Published May 29, 2017
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/ins.08(1).2017.02
  • Article Info
    Volume 8 2017, Issue #1, pp. 16-28
  • TO CITE АНОТАЦІЯ
  • Cited by
    4 articles
  • 1350 Views
  • 328 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Prior literature suggests that diversified property-liability (P/L) insurers underperform their focused counterparts. While most studies focus on insurers’ overall performance, there is an absence of evidence regarding whether the underperformance is driven by underwriting or investment profitability. The authors develop and test hypotheses of diversification’s separate effect on underwriting and investing in the U.S. property-liability (P/L) insurance industry. It is found that diversified insurers outperform their focused counterparts in terms of investment return, but that they underperform in terms of underwriting profitability. The results are robust to corrections for endogeneity bias and a matched sample analysis.

view full abstract hide full abstract
    • Table 1. Summary statistics
    • Table 2. Diversification effect on underwriting performance
    • Table 3. Diversification effect on investment performance