Greg Niehaus

• University of South Carolina

Insurer investment returns are taxed in the United States at the corporate level and at the personal level when they are distributed to shareholders. This paper examines the implications of personal taxes for the tax cost on insurers equity capital and how these tax costs have varied over time under different tax regimes and with different asset po...

Analyzing major US 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 f...

Private insurance coverage for economic losses caused by pandemics is limited. While many factors contribute to reduced demand and supply, we attribute the low amount of coverage to the high levels of capital that would be required to credibly insure pandemic economic losses with cross-sectional pooling mechanisms. Pooling over time significantly r...

For many years, MBA students were taught that there was no good reason for companies that hedge large currency or commodity price exposures to have lower costs of capital, or trade at higher P/E multiples, than comparable companies that choose not to hedge such financial price risks. Corporate stockholders, just by holding well‐diversified portfoli...

Using variation across countries and time in the degree to which regulations restrict banks and insurers from engaging in the same activities, we find that property/liability insurers' connectedness to the banking sector declines when regulatory restrictions increase, but life insurers' connectedness to banks does not. The results suggest that the...

Our evidence indicates that U.S. life insurers’ decisions to buy and sell individual corporate bonds are correlated across companies within the life insurance industry. On average, the correlation in sell decisions is greater in smaller bonds, bonds with lower ratings, bonds that have been downgraded, and bonds that have recently experienced relati...

The purpose of this chapter is to discuss the implications of enterprise risk management (ERM) for the risk management process. From my perspective, ERM does not change the major steps in the traditional risk management process; instead, ERM encourages organizations to take a broader perspective and carry out a deeper analysis in each of the steps...

This chapter examines the role of insurance in enterprise risk management, primarily from a shareholder value maximization perspective. Because it is useful for risk managers to understand insurance from the supplier's perspective, the chapter initially discusses the determinants of insurance prices and the factors inhibiting the supply of insuranc...

The movement of capital within insurance groups is important for understanding insolvency risk management, as well as regulatory policies regarding capital standards and group supervision. Panel data estimates indicate that, on average, a dollar decrease in performance (net income plus unrealized capital gains) when performance is negative is assoc...

Catastrophe futures and options are derivative securities whose payoffs depend on insurers' underwriting losses arising from natural catastrophes (e.g., hurricanes).

Research on decision-making under uncertainty has highlighted that individuals often use simple heuristics and/or exhibit behavioural biases. Specifically, with respect to portfolio decisions, research has indicated that investors are subject to the disposition effect, i.e. they are reluctant to sell assets that have performed poorly (losers) and p...

Understanding the movement of capital between insurers and affiliated companies under common ownership is important for understanding insurer insolvency risk and the impact of regulatory policies regarding capital standards and group supervision. Aggregate data indicate that life insurers received substantial internal capital contributions from oth...

This chapter reviews the literature on underwriting cycles and volatility in property-casualty insurance prices and profits. It provides a conceptual framework for assessing unexplained and possibly cyclical variation. It summarizes time series evidence of whether underwriting results follow a second-order autoregressive process and illustrates the...

A bstract The senior management team and board of directors at American Electric Power (AEP) have emphasized the importance of an Enterprise Risk Management approach for dealing with the wide array of risk exposures that the firm faces. Senior management has put in place a risk governance structure that facilitates the identification of major risk...

Using NASDAQ reported individual stock level trading volume, we find that analyst research coverage on a stock increases the level of an affiliated broker’s market share of trading volume in that stock by 0.8 percent, on average, which corresponds to an additional annual volume of about one million shares in an average stock. Optimistic recommendat...

Firms that wish to switch from a traditional defined-benefit pension plan to a defined-contribution-type plan have a choice between converting to a cash-balance plan or replacing the defined-benefit plan with a full-fledged defined-contribution plan. According to Ippolito and Thompson's (1999; "Industrial Relations", 39: 228-245) excise tax avoidan...

We compare turnover of subsidiary managers inside conglomerate firms to turnover of CEOs of comparable stand-alone firms. We find that, compared to turnover of CEOs, subsidiary manager turnover is significantly more sensitive to changes in performance and significantly more likely following poor performance. For subsidiary managers, the relation be...

We provide estimates of the equity capital needed and the resulting tax costs incurred when supplying catastrophe insurance/reinsurance using a partial equilibrium model that incorporates a specific loss distribution for US catastrophe losses. After consideration of insurer investment in tax-exempt securities, tax loss carry-back/forward provisions...

In August of 1999, Mike McAndless, the risk manager of United Grain Growers (UGG), was preparing for a meeting with the firm's chief financial officer, Peter Cox. Mike and Peter had spent considerable time over the past three years with representatives of the Willis Group Ltd., a large international insurance broker, identifying and measuring UGG's...

An extensive prior literature documents the sensitivity of CEO turnover to performance. However, little is known about turnover in the firm's internal labor market. We compare the likelihood of turnover following poor performance for a sample of subsidiary managers inside conglomerate firms to the likelihood of turnover of CEOs of comparable stand-...

The potential losses from catastrophes have led financial researchers to address the following questions: (1) to what extent is catastrophe risk being shared (insured) and is the allocation of catastrophe risk consistent with notions of optimal risk sharing? (2) if not, what market imperfections hinder the efficient allocation of catastrophe risk?...

Mutual insurers generally face higher costs of raising new capital than stock insurers. Other things being equal, the higher costs of raising capital should cause mutual insurers to have higher ex ante target capital to liability ratios than stock insurers. Mutual insurers' capital ratios also should be more sensitive to income than capital ratios...

Enterprise risk management (ERM) refers to the identification, quantification, and management of all of a company's risks within a unified framework. This approach is much more comprehensive than traditional risk management practice, where different types of risk are managed by different people using different tools. The authors evaluate the advant...

This paper describes and illustrates the main ideas and findings of research on the volatility and cyclical behavior of insurance prices relative to those predicted by a perfectly competitive market in long-run equilibrium. After presenting evidence that insurance market prices indeed follow a second order autoregressive process, we examine several...

We provide estimates of the tax costs of equity financing and the resulting effects on the prices of catastrophe insurance/reinsurance arrangements using a partial equilibrium model of insurance pricing and capitalization that incorporates specific loss distributions for nationwide catastrophe losses. After consideration of insurer investment in ta...

In the typical securities class action (SCA), firms and their managers are sued for securities law violations by shareholders who allege that managers fraudulently withheld negative information or published misleading information during a period known as the "class period." We examine insider selling and seasoned equity issues during this period to...

This study provides evidence of the potential hedging effectiveness of insurance derivatives based on regional estimates of catastrophe losses. We estimate the percentage of insurers' by line and state underwriting risk that could have been eliminated over the 1974 through 1994 period if they had hedged using state-specific catastrophe derivatives...

Following G. Becker's (1993) suggestion that tests for discrimination should attempt to infer whether profits differ for products sold to minorities and nonminorities, this article tests the hypothesis that racial discrimination affects market prices of auto insurance in Missouri. Compared with tests for discrimination in lending markets, the autho...

This paper investigates the motivations for and consequences of including a broad group of employees in leveraged buyouts by comparing employee buyouts (EBOs) to transactions where only top level managers participate, or management buyouts (MBOs). We examine the implications of including employees in a buyout from a labor contracting, financing, an...

We examine the property rights to excess pension assets and to unfunded pension liabilities by estimating the relation between debt ratings and the funding status of firms' pension plans. We test the hypothesis that a dollar of unfunded pension liabilities augments corporate liabilities more than a dollar of excess pension assets augments corporate...

Insurance futures contracts and options on these contracts developed by the Chicago Board of Trade provide a means for insurers and reinsurers to hedge underwriting losses due to industry-wide shocks, such as natural catastrophes. In order for insurance derivatives to be viable, they must lower insurers' costs compared to other methods that mitigat...

This article examines both the shareholder wealth effects of employee stock ownership plans (ESOPs) announced by firms subject to takeover pressure and the takeover incidence of targets with and without ESOPs. Although we do not find that defensive ESOPs significantly reduce shareholder wealth on average, we identify two factors - the change in man...

Time series causality tests are used to examine hypotheses about the determinants of insurance premiums and causes of the underwriting cycle. The evidence supports the hypothesis that underwriting cycles are partially due to costly external capital as predicted by Winter (1989), Cummins and Danzon (1992), and Gron (1992).

associated with pension claims is significant, and therefore a risk premium must be added to the risk free rate when discounting pension claims for valuation purposes. This article also focuses on the interest rate risk of pension claims, but my conclusions differ considerably from Nader's. The key to Nader's analysis is the assumption that employe...

This article analyzes insurance futures contracts versus reinsurance contracts as alternative methods of trading underwriting risk. Insurance futures contracts are based on the systematic portion of underwriting risk within a line of insurance. Because variability in losses due to systematic factors is outside the control of individual insurers, fu...

The Pension Benefit Guarantee Corporation (PBGC) initially insured private pension benefits in exchange for a premium that was not risk sensitive. This paper derives conditions under which a moral hazard problem caused promised pension benefits to increase. The hypotheses are tested using data on individual pension contracts from the pre- and post-...

This article examines how the pension insurance provided by the PBGC and the tax treatment of pension plans affect the cost of labor and capital. Two important aspects of the insurance program are (1) the premium schedule and (2) an employer's liability for unfunded pension benefits (the deductible). These two aspects interact to increase the cost...