The Impact of Firm Risk on Property-Liability Insurance Prices

This article examines the impact of an insurer's level of insolvency risk on the prices the insurer obtains for its products in the property-liability insurance market. The measures of insolvency risk used are those implied by the option pricing model of insurance. The key finding is the existe...

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Bibliographic Details
Published in:The Journal of risk and insurance 1996-09, Vol.63 (3), p.501-514
Main Author: Sommer, David W.
Format: Article
Language:English
Subjects:
Guarantees
Guaranty funds
Insolvency
Insurance markets
Insurance premiums
Insurance providers
Insurance rates
Insurance regulation
Investment risk
Liability insurance
Property & casualty insurance
Property liability insurance
Risk exposure
Shorter Articles
Statistical analysis
Studies
Workers compensation insurance
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Summary:This article examines the impact of an insurer's level of insolvency risk on the prices the insurer obtains for its products in the property-liability insurance market. The measures of insolvency risk used are those implied by the option pricing model of insurance. The key finding is the existence of a negative relation between insolvency risk and insurance prices. This implies that property-liability insurers are penalized for default risk through lower prices, despite the existence of guaranty funds. Other firm-specific determinants of insurance prices are also identified. The results have significant implications for insurance researchers and regulators.
ISSN:0022-4367
1539-6975
DOI:10.2307/253623