Riskprof will be posting more regularly now that school is supposed to start. Lars, Ty and I were out in Portland, OR for the American Risk and Insurance Association's Annual Meeting. Papers can be found here.
Here are a few I thought were interesting. There were probably others but I did not get to see them.
An Economic Analysis of Single versus Multiple Jurisdictional Regulation –
The Case of Risk Retention Groups
J. Tyler Leverty
July 28, 2008
Insurers are regulated by states. However, a small subset of firms, risk retention
groups (RRGs), are subject to single entity regulation. This paper attempts to
determine the effect of duplicative regulation by isolating those firms that have the
opportunity to choose between single- or multiple-jurisdictional regulation. The
results reveal that there is significant increased regulatory compliance costs
associated with multi-state regulation and these costs influence firms’
organizational structure decisions. In addition, regression estimates suggest that a
move to a single-jurisdictional regulatory framework would result in a 24 percent
reduction in total expenses for the average firm. Moreover, results show that the
higher compliance costs associated with multi-jurisdictional regulation leads to a
higher per unit costs of insurance. Overall, there are significant benefits associated
with moving away to a single entity regulatory framework.
The Costs and Benefits of Reinsurance
By J D Cummins
Purchasing reinsurance reduces insurers’ insolvency risk by stabilizing loss experience, increasing capacity, limiting liability on specific risks, and/or protecting against catastrophes. Consequently, reinsurance purchase should reduce capital costs. However, transferring risk to reinsurers is expensive. The cost of reinsurance for an insurer can be much larger than the actuarial price of the risk transferred. In this article, we analyze empirically the costs and the benefits of reinsurance for a sample of U.S. property-liability insurers. The results show that reinsurance purchase increases significantly the insurers’ costs but reduces significantly the volatility of the loss ratio. With purchasing reinsurance, insurers accept to pay higher costs of insurance production to reduce their underwriting risk.
Catastrophe Insurance and Regulation
by Robert w Klein.
This paper analyzes the regulation of property insurance markets affected by the risk of hurricanes in the US and initiates an exploration of the political economy of catastrophe risk. The severe storm seasons of 2004-2005 and subsequent market developments prompted a range of government reactions in various states. The paper examines the interaction of catastrophe risk, loss shocks, insurance market responses, and government actions. This examination focuses on Florida and compares its policies with those in other coastal states. Florida faces the greatest risk and market pressure and has responded with the strongest regulatory measures. Other states’ actions have been less severe but still important. Further, coastal politicians are seeking to transfer a substantial portion of catastrophe risk to the federal government in order to lower the cost of property insurance for their constituents. This paper evaluates the factors driving regulatory policies and their implications and offers opinions on government strategies that will promote market stabilization and more efficient management of catastrophe risk.