Contagion Effects in the Insurance Industry

Polonchek, John A.; Miller, Ronald K.

doi:10.2307/253556

Cited by 37 publications

(32 citation statements)

References 18 publications

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“…Polonchek and Miller's (1999) finding that market reactions to equity offerings by insurers are greater than those for similar offerings by commercial banks offers empirical support for the direction of our study.…”

Section: Effects Of Asset and Business Opaqueness On Adverse Selectiosupporting

confidence: 63%

“…Several empirical studies document evidence of information asymmetry impounded in the asset portfolios of such financial institutions. For instance, Polonchek and Miller (1999) find significant and negative abnormal returns for equity offerings by insurers, and conclude that the information asymmetry with respect to the asset portfolios of insurers increases the market expectation of adverse selection favoring managers. Slovin, Sushka, and Polonchek (1992) find significant and negative effects of bank equity issuance on rival banks' stock prices, and attribute this contagion effect to information asymmetry with regard to bank asset portfolios.…”

Section: Adverse Selection In Capital Marketsmentioning

confidence: 90%

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Adverse Selection and the Opaqueness of Insurers

Zhang¹,

Cox²,

Ness³

2009

J of Risk & Insurance

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While adverse selection problems between insureds and insurers are well known to insurance researchers, few explore adverse selection in the insurance industry from a capital markets perspective. This study examines adverse selection in the quoted prices of insurers' common stocks with a particular focus on the opacity of both asset portfolios and underwriting liabilities. We find that more opaque underwriting lines result in greater adverse selection costs for property-casualty (P-C) insurers. A similar effect is not apparent for life-health (L-H) insurers and we find no effect of asset opaqueness on adverse selection for either L-H or P-C insurers.

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Section: Effects Of Asset and Business Opaqueness On Adverse Selectiosupporting

confidence: 63%

Section: Adverse Selection In Capital Marketsmentioning

confidence: 90%

Adverse Selection and the Opaqueness of Insurers

Zhang¹,

Cox²,

Ness³

2009

J of Risk & Insurance

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“…Hence, the null hypothesis is rejected at the 0.01 level of significance; this implies that there is significant relationship between reinsurance capacity and financial stability of insurance companies in Nigeria. Earlier remark by Polonchek & Miller (1999) opined that high monitoring costs are experienced once investors holding the securities of a reinsurance company are relatively uninformed about the quality of the financial portfolio of the insurance company. International Association of Insurance Supervisors (2014) suggests that large reinsurance groups are likely to absorb even a fat tail combining severe catastrophic and financial market stress.…”

Section: Resultsmentioning

confidence: 99%

Reinsurance and Performance of the Ceding Companies: The Nigerian Insurance Industry Experience

Aduloju

Ajemunigbohun

2017

Economics and Business

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Abstract. This paper examines the relationship between ceding office gross premium income, underwriting profit and financial stability. The study made use of primary and secondary data. The primary data were obtained from 246 respondents selected from those companies through the use of structured questionnaire. The secondary data obtained from the 2014 and 2015 published financials of the selected ten companies were used to determine the Reinsurance Ceded Ratio (RCR), Return on Asset (ROA), Return on Equity (ROE) as well as the Ratio of Reinsurance Recoverables to Policyholders Surplus (RRPHS). A descriptive research design was employed. The sampling technique adopted was purposive in nature. The study population comprises 56 insurance companies in Nigeria. More so, data collected was analysed using correlation analytical method. The results of this study are quite in line with previous studies and show that reinsurance purchase increases significantly the insurers' premium income. It is also shown that profitability of the firm is sensitive to change in reinsurance utilisation and has a positive relationship with it. It was established in the study that purchasing reinsurance reduces insurers' insolvency risk by stabilizing loss experience and increasing capacity. Recommendations were made.

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“…Generally, these papers conclude that while there is evidence for contagious effects, they can be largely attributed to fundamentals rather than irrational investor behavior. Slovin et al (1999) Fenn and Cole (1994) and Polonchek and Miller (1999) present two of the few studies that exist on contagion effects for the insurance industry. Polonchek and Miller (1999) argue that contagion effects between insurance firms arise because of monitoring costs.…”

Section: Literature Reviewmentioning

confidence: 99%

Credit Contagion between Financial Systems

Podlich

Wedow

2011

SSRN Journal

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Abstract:We examine contagion from a number of financial systems to the German financial system using the information content of CDS prices in a GARCH model. After controlling for common factors which may cause comovement in security prices, we find evidence for contagion from the US and European financial systems. Our results additionally confirm that the set up of the financial rescue scheme in Germany partially shielded German banks but not insurance companies from contagion. Overall, our results suggest that contagion from dealer banks have the most prominent effect on the German financial system. While dealer banks impact on German banks and insurance companies in a similar way, a deterioration in the CDS spreads of dealer banks has a particularly pronounced effect on German dealer banks. Keywords:Systemic Risk, CDS Spreads, Contagion, OTC Dealer JEL-Classification: G14, G21, G28 Non-technical summaryThe global financial crises has led to a marked rise in the awareness of the importance of systemic risk. More specifically, the crisis has demonstrated that systemic events can rapidly spill over across borders and to markets, gathering strength and augmenting systemic risk. The vulnerability of financial institutions to contagious effects has placed this issue on top of the agenda of financial stability regulation.In this paper, we examine contagion effects emanating from the financial systems of the US, Europe, Asia-Pacific region and emerging markets to the German financial system using the information content of CDS prices. The structure of OTC markets makes this market and the dealer banks particularly vulnerable to contagion. This is largely due to the high concentration of trading among a few dealers and to the opaqueness of the market. For this reason, we specifically examine the strength of contagion from dealer banks to the German financial system, distinguishing between banks and insurance companies. In addition we explore the magnitude of contagion over time. The relevance of the dynamic nature of contagion was demonstrated during the financial crisis, which started in the US housing market but peaked when a number of individual institutions became distressed. We thus investigate changes in the strength of these financial systems' interdependence. To achieve this we consider, inter alia, the impact of the default of Lehman Brothers and the financial stabilization scheme set up in Germany. To address all these objectives, we use weighted CDS spread indices for each financial system. Our reliance on broad indices allows us to obtain a comprehensive view of the risk to the German financial system. Our findings suggest that there are strong contagious effects from the US and Europe and no effects from the Asia-Pacific region and emerging markets on the the German financial system. While the magnitude of contagion from the US and Europe to the German financial system is comparable, contagion from the US only affects the level of risk in the German financial system, while contagion from the European fina...

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Contagion Effects in the Insurance Industry

Cited by 37 publications

References 18 publications

Adverse Selection and the Opaqueness of Insurers

Adverse Selection and the Opaqueness of Insurers

Reinsurance and Performance of the Ceding Companies: The Nigerian Insurance Industry Experience

Credit Contagion between Financial Systems

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