Prof. Richard D. Phillips (Georgia State University)

Programm

• Datum: 11.12.2008
  Zeit: 12:00 - 14:00
  Ort: Seminarraum, Schackstr. 4/III

Regulator performance, regulatory environment and outcomes: An examination of insurance regulator career incentives on state insurance markets

In this paper we test whether the past or future labor market choices of insurance commissioners provide incentives for regulators in states with price regulation to either favor or oppose the industry by allowing prices that differ significantly from what would otherwise be the competitive market outcome. Using biographical data on insurance regulators, economic and state specific market structure and regulatory variables, and state premium and loss data on the personal automobile insurance market, we find no evidence consumers in prior approval states paid significantly different ‘‘unit prices’’ for insurance than consumers in states that allow competitive market forces to determine equilibrium prices during the time period 1985–2002. We do, however, find evidence regulators who obtained the position of insurance commissioner by popular election and those who seek higher elective office following their tenure as insurance commissioner allow higher overall ‘‘unit prices’’ relative to competitive market states. The ‘‘unit price’’ of insurance in regulated states is not statistically different from the competitive market outcome for regulators that make lateral moves back into state government and it is mildly higher for regulators who enter the insurance industry following their tenure. Finally, we find some evidence regulators who describe themselves as consumer advocates are successful reducing the price of insurance in favor of consumers in regulated markets. Overall the results are consistent with the existence of asymmetric information in the regulatory process that agents use to enhance their career aspirations.

• Datum: 11.12.2008
  Zeit: 17:00 - 19:00
  Ort: Raum 307, Schackstr. 4/III

Enterprise Risk Management and the Insurance Industry: Investigating the Source of Value

In this lecture Professor Phillips will present new research that empirically investigates the link between insurer ERM practices and the value it creates for the firm. In addition, we seek to identify those characteristics regarding the implementation of an insurer's ERM program that leads to the greatest impact on firm value. The research takes advantage of a unique partnership formed between researchers at Georgia State University and the professional services consulting firm Tillinghast as the GSU research team was provided special access to the biennial surveys that Tillinghast has been conducting regarding the risk management practices of insurers published for the past six years. The surveys cover a large number of insurers (over 200 respondents in 2006) and provide a broad overview of industry practice. In addition to knowing which firms made investments in ERM, the surveys provide significant detail about different choices insurer's make regarding the implementation of their ERM program. Combining the results of the surveys along with market value and accounting data provides a unique opportunity to construct a cross sectional-times series panel data set that allows us to isolate the impact of the various attributes of ERM on various measures the operational, cash flow and market value performance of firms investing in ERM. 

• Datum: 12.12.2008
  Zeit: 15:00 - 17:00
  Ort: Seminarraum, Schackstr. 4/III

The Pricing of Financially Intermediated Risks: Empirical Evidence from the Property-Liability Insurance Industry

Under perfect market conditions, standard capital budgeting theory predicts that the discount rates on projects should reflect only non-diversifiable risk and be constant across firms. However, theoretical research suggests that when firms invest in non-hedgeable assets under conditions where capital is costly, project pricing should reflect the covariability of the project with the firm’s existing portfolio, even if this covariability represents non-systematic risk. The theory is especially applicable to financial institutions pricing intermediated risks. Theoretical research also suggests that the prices of intermediated risks will reflect the capital strain that such risks place on the intermediary and hence reflect implicit allocations of capital to the intermediary’s business lines. We test these theoretical predictions by analyzing the prices of insurance risks for U.S. property-liability insurers over the period 1997-2004. Specifically, we regress insurance price variables on beta coefficients of insurance line of business losses with overall losses and firm assets, capital allocations by line, measures of insurer insolvency risk, and other risk and control variables. The results provide strong support for theoretical predictions that prices of intermediated risks vary across firms to reflect insolvency risk, non-systematic covariability, and marginal capital allocations.