nep-ias New Economics Papers
on Insurance Economics
Issue of 2006‒07‒21
three papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Insurance Sector Risk By Jan Frederik Slijkerman
  2. Choice of Corporate Risk Management Tools under Moral Hazard By Jan Bena
  3. Commercial Activity as Insurance: the Investment Behavior of Non-Profit Firms By John Bennett; Elisabetta Iossa; Gabriella Legrenzi

  1. By: Jan Frederik Slijkerman (Faculty of Economics, Erasmus Universiteit Rotterdam)
    Abstract: We model and measure simultaneous large losses of the market value of insurers to understand the impact of shocks on the insurance sector. The downside risk of insurers is explicitly modelled by common and idiosyncratic risk factors. Since reinsurance is important for the capacity of insurers, we measure risk dependence among European insurers and reinsurers. The results point to a relatively low insurance sector wide risk. Dependence among insurers is higher than among reinsurers.
    Keywords: Systemic risk; asymptotic dependence
    JEL: G15 G22 G38
    Date: 2006–06–12
  2. By: Jan Bena
    Abstract: This paper examines the choice of tools for managing a firm’s operational risks: cash reserves, insurance contracts, and financial assets under an optimal financing contract that solves moral hazard between insiders and outside investors. Risk management is valuable as it reduces the costs of raising external financing, increases debt capacity, lessens underinvestment, and improves welfare. I show that insurance is superior as it facilitates the outside financing relationship but leads to inefficient excessive continuation if used without coverage limits. When insurance against an operational risk is not available, the firm uses financial assets instead or resorts to holding cash reserves.
    Date: 2006–06
  3. By: John Bennett (Brunel University); Elisabetta Iossa (CMPO University of Bristol); Gabriella Legrenzi (Keele University, Centre for Economic Research and School of Economic and Management Studies)
    Abstract: We provide a new rationale for commercial activities by non-profit organizations (NPOs) whose primary concern is to supply mission output. We show that investment in commercial activity may be used to insure mission output against the uncertainty of donations, though possibly at the cost of lower expected mission output. In this case, the amount of commercial investment is positively related to the variance of donations and to the degree of risk aversion. These predictions are corroborated by empirical tests on data from NPOs operating in the state of New York.
    Keywords: Insurance, investment, non-profit organisations.
    JEL: L21 L31 C21
    Date: 2006–07

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