nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒08‒30
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Protecting Directors and Officers from Liability Arising from Aggressive Earnings Management By M. Martin Boyer; Amandine Hanon
  2. Simulation of Economic Losses from Tropical Cyclones in the Years 2015 and 2050: The Effects of Anthropogenic Climate Change and Growing Wealth By Silvio Schmidt; Claudia Kemfert; Eberhard Faust
  3. Pay-as-you-speed:An economic field-experiment By Hultkrantz, Lars; Lindberg, Gunnar
  4. Blanket guarantee and restructuring decisions for multinational banks in a bargaining model By Niinimäki, Juha-Pekka; Mälkönen, Ville

  1. By: M. Martin Boyer; Amandine Hanon
    Abstract: A lingering topic in corporate governance is whether corporate directors should be protected against shareholder lawsuits and whether such protection reduces the incentives of directors to monitor appropriately the behaviour of corporate officers. To achieve this goal, we examine whether corporations whose corporate managers’ wealth is protected under a directors’ and officers’ liability insurance policy (D&O insurance hereafter) are more to report accounting results aggressively. Using discretionary accruals as our measure of accounting aggressiveness, the results in our paper suggest that the magnitude of discretionary accruals has no real impact on the demand for D&O insurance, be it on the decision to purchase insurance or on the amount of limit chosen. The positivity of discretionary accruals appears, however, to have an impact on the decision to purchase insurance. Surprisingly, although these insurance policies protect directors and officers in the event they make a “mistake” in their role as representatives of the company, directors do not seem to see this as an invitation to be a little less careful when overseeing the firm’s accounting practices. <P>Un sujet qui demeure d’actualité quand on pense à la gouvernance des entreprises est le niveau de protection auquel les dirigeants devraient avoir droit en cas de poursuite par les actionnaires. Pour atteindre ce but, nous examinons s’il y a un lien entre la gestion agressive des courus discrétionnaires et la demande d’assurance de la responsabilité civile des administrateurs et dirigeants d’entreprise (ARCAD ci-après). Nous trouvons dans la présente étude que la taille des courus ne semble avoir aucun impact sur la demande d’assurance, que ce soit le fait même d’avoir un contrat ou la limite de la police. Le fait que les courus soient positifs semble toutefois avoir un impact sur le fait que les entreprises possèdent une ARCAD ou non. Nous demeurons perplexes de voir que même si l’ARCAD protège les dirigeants contre le coût de poursuites au civile, ces mêmes dirigeants ne voient pas cela comme une invitation au laxisme dans la supervision des pratiques comptables des entreprises.
    Keywords: directors’ and officers’ liability insurance policy, aggressive accounting practices, earnings management , ARCAD, pratiques comptables agressives, résultats financiers de gestion.
    Date: 2009–08–01
  2. By: Silvio Schmidt; Claudia Kemfert; Eberhard Faust
    Abstract: This paper simulates the increase in the average annual loss from tropical cyclones in the North Atlantic for the years 2015 and 2050. The simulation is based on assumptions concerning wealth trends in the regions affected by the storms, considered by the change in material assets (capital stock). Further assumptions are made about the trend in storm intensity resulting from anthropogenic climate change. The simulations use a stochastic model that models the annual storm loss from the number of storms and the loss per storm event. The paper demonstrates that increasing wealth will continue to be the principle loss driver in the future (average annual loss in 2015 +32%, in 2050 +308%). But climate change will also lead to higher losses (average annual loss in 2015 +4%, in 2050 +11%). In order to reduce the uncertainties surrounding the assumptions on the trend in capital stock and storm intensity, a sensitivity analysis was carried out, based on the assumptions from current studies on the future costs for tropical storms.
    Keywords: climate change, tropical cyclones, natural catastrophes, insurance
    Date: 2009
  3. By: Hultkrantz, Lars (Örebro University and VTI); Lindberg, Gunnar (VTI)
    Abstract: We report a vehicle-fleet experiment with an economic incentive given to car drivers for keeping within speed limits. A pay-as-you-speed traffic insurance scheme was simulated with a monthly participation bonus that was reduced by a non-linear speeding penalty. Actual speed was monitored by a GPS in-vehicle device. Participating drivers were randomly assigned into two-by two treatment groups, with different participation-bonus and penalty levels, and two control groups (high and low participation bonus, but no penalty). A third control group consists of drivers with the same technical equipment who did not participate but whose driving could be monitored. We evaluate changes in behaviour from twelve-month differences in proportion of driving time per month that the car was exceeding the maximum allowed speed on the road. We find that the participating drivers significantly reduced severe speeding violations during the first experiment month, while in the second experiment month, after having received feedback reports with an account of earned payments, only those participating subjects that were given a speeding penalty reduced severe speed violations. We find no significant effects from the size of the participation bonus (high vs. low), or the size of the penalty (high vs. low rate).
    Keywords: Traffic insurance; traffic safety; Intelligent Transport Systems; ITS; Intelligent Speed Adaptation; ISA
    JEL: H23 I18 K42 R41
    Date: 2009–08–26
  4. By: Niinimäki, Juha-Pekka (Bank of Finland Research); Mälkönen, Ville (Government Institute for Economic Research)
    Abstract: This paper examines blanket guarantee and restructuring decisions in respect of a multinational bank (MNB) using Nash bargaining, when the threat of a panic motivates countries to take decisions quickly. The failure of the bank would cause unevenly distributed externalities between the countries concerned, which influences restructuring incentives. In equilibrium, the bank is either liquidated or one – or both of the countries – recapitalizes it. The partition of the recapitalisation costs is sensitive to the country-specific benefits and costs from recapitalisation, panics and liquidation. The home regulator benefits from the privilege of being the only entity that can legally liquidate the MNB. Rational expectations regarding the bargaining result affect the incentives to declare a blanket guarantee.
    Keywords: banking crises; bank restructuring; blanket guarantee; bargaining; deposit insurance
    JEL: G21 G22 G28
    Date: 2009–08–03

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