Some of the largest global insurers are actively pursuing the recently enacted Principles for Sustainable Insurance (PSI). While the concept of sustainability is often associated with a governance design that promotes stakeholder value, the PSI do not appear to be a call for stakeholder‐focused insurers. Rather, the PSI appear to be about internalizing tacit claims in the operations of insurers. Conceptual and empirical literature on shareholder value maximization suggests that when an insurer honors its tacit claims the value to shareholders increases. A key insight from practice is that a sincere pursuit of the PSI will expand the scope of corporate risk management.
This study examines whether mutual life insurers pay policyholder dividends in response to the costs of managerial discretion. The insurer's free cash flow and the variation in free cash flow explain over 85 percent of the variation in policyholder dividends for a time-series, cross-sectional sample of mutual life insurers. The findings hold under different specifications of the estimated model and for a control sample of stock life insurers.
This study proposes that the operation of single-parent captive insurers enhance the stature of managers and tests the hypothesis that corporations with heightened manager-owner conflicts of interest are more likely to operate a single-parent captive insurer. A time-series, cross-sectional sample of 4,212 observations is used. Corporate free cash flow and volatility of free cash flow are positively related to the likelihood of operating single-parent captive insurers while the availability of investment opportunities is inversely related to the likelihood of operating single-parent captive insurers. It appears, therefore, that corporations with heightened manager-owner conflicts of interest are more likely to operate captive insurers.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.