Insurer Growth Strategies

Abstract

We study corporate growth strategy within the U.S. property–casualty insurance industry—where firms are required to report uniquely detailed operating information. We present and test two hypotheses related to the manner in which firms choose to grow: the pecking order hypothesis and the managerial discretion hypothesis. Our results imply that insurers follow a general pecking order of growth strategies, where they tend to grow first by entering new states, then by adding new lines of business, and finally through acquisitions. This order is consistent with firms initially choosing to grow in the least costly and complex manner and subsequently choosing more costly and complex methods. We also find evidence in support of the managerial discretion hypothesis as mutual insurers are less likely to choose to grow and, when they do, they tend to select less complex growth methods.

Mind the (IT-)System – Ein Vorschlag zur Gestaltung einer IT Due Diligence von Versicherungsunternehmen

“…Die Motive für M&A können dabei von der Ausweitung der geografischen Reichweite und dem Ausbau von Produktangebot und Vertriebskapazitäten (Berger et al 2000;Amel et al 2004;Focarelli und Pozzolo 2008;DeYoung et al 2009;Fier et al 2017), über die Erzielung von Synergien (Chamberlain und Tennyson 1998;Aduloju et al 2008;Boubakri et al 2008;Cummins und Xie 2008;Brito et al 2013;Cummins et al 2015) sowie die Realisierung signifikanter Skalen-und Verbundeffekte (Katrishen und Scordis 1998;Cummins et al 1999Cummins et al , 2015Akhigbe und Madura 2001;Campa und Hernando 2006;Cummins und Rubio-Misas 2006;Elango 2006;Fenn et al 2008;Bikker und Gorter 2011;Shim 2011), bis hin zur gezielten Akquisition von Know-how (Kirova et al 2015) reichen. Die vermehrten M&A-Aktivitäten bergen für die agierenden Versicherungsunternehmen großes Potenzial aber auch hohes Risiko, das es durch eine ganzheitliche DD-Prüfung zu identifizieren und analysieren gilt (Perry und Herd 2004).…”

The effect of predation risk on cash holdings: Empirical evidence from the U.S. property‐liability insurance industry

“…Therefore, we would expect the positive relationship between market concentration and cash holdings to hold only for the sample of unaffiliated firms. Our second hypothesis is given as: Investment opportunities may include product or geographic expansion through either organic growth or acquisitions, and cash holdings can be used to take advantage of these opportunities when they emerge (Fier, Liebenberg, & Liebenberg, 2017;Hsu, Huang, & Lai, 2015;Xie et al, 2017). 9 The greater costs associated with external capital are often attributed to informational asymmetries and other market frictions which may exist (Harford, Mansi, & Maxwell, 2008).…”

“…Investment opportunities may include product or geographic expansion through either organic growth or acquisitions, and cash holdings can be used to take advantage of these opportunities when they emerge (Fier, Liebenberg, & Liebenberg, ; Hsu, Huang, & Lai, ; Xie et al, ).…”

Balancing growth, profitability and safety in the German insurance market

“…They include the loss ratio as independent variable in their analysis on the likelihood of insolvency, arguing that the likelihood is lower for insurers with a favorable claims experience. Fier et al (2017) also include the loss ratio as control variable as part of the underwriting performance. We define the loss rate as follows:…”