Concentration and financial stability in the property-liability insurance sector: global evidence

Abstract

Purpose

This paper aims to examine the effect of concentration in the insurance sector on insurer stability for a large set of developed and developing countries. In particular, the authors test whether concentration reduces financial fragility in the insurance sector (“concentration-stability view”) or decreases stability in the insurance sector (“concentration-fragility view”).

Design/methodology/approach

The authors use a data set of 14,402 firm-year observations of property-liability insurers who appear in A.M. Best’s Statement File Global database during the period 2004-2012. They use regression analyses to examine the effect of concentration on the stability of insurance firms and apply different measures of concentration.

Findings

The results provide empirical support for the “concentration- fragility view”; that is, higher levels of concentration are associated with decreases in the insurance sector’s financial stability.

Research limitations/implications

The results have important policy implications, given that a primary purpose of insurance regulation is to protect policyholders against insurance firm defaults.

Originality/value

No previous research analyzes how recent trends in competition and consolidation, which have led to changes in insurance market concentration, affect the stability of insurance firms around the world. This research is the first paper that provides evidence on the relation between concentration and stability in the insurance sector.

Citation

Altuntas, M. and Rauch, J. (2017), "Concentration and financial stability in the property-liability insurance sector: global evidence", Journal of Risk Finance, Vol. 18 No. 3, pp. 284-302. https://doi.org/10.1108/JRF-10-2016-0128