Enterprise Risk Management and Diversification Effects for Property and Casualty Insurance Companies
نویسندگان
چکیده
In a well-designed enterprise risk management (ERM) program, the firm integrates risk management into the strategic planning process, addressing strategic risk, financial risk, operational risk, and hazard risk under a single overarching process. This is particularly important to large financial firms, such as property and casualty (P&C) insurers, which face a diverse set of risks. We find that ERM quality, as measured by S&P ERM ratings from 2006 2012, has a strong positive affect on ROA and Tobin’s Q for P&C insurers. In contrast to previous studies that have found that diversified firms suffer a value discount relative to their more focused peers, the results of this study suggest that, after controlling for ERM quality, business line diversification is associated with a performance premium whereas geographic diversification is not a significant factor.
منابع مشابه
Mixing and Matching: Prospective Financial Sector Mergers and Market Valuation
Which types of mergers are likely to be most productive for banks and other financial firms in the United States after the Gramm-Leach-Bliley Act? From a management perspective, mixing disparate firms may be difficult, but may offer significant gains from diversification. The opposite applies to matching similar firms. This paper considers life insurance, property and casualty insurance, securi...
متن کاملThe Study of the Effect of Diversification Strategy, Cost Leader-ship Strategies and Product Differentiation on Business Unit Value
Changes in credit risk may arise when either the value or the risk of corporate assets changes. Changes in the equity value associated with the changes in the asset value and changes in asset risk can be characterized into potentially countervailing direct and indirect effects. The indirect effect of risk on equity value is a function of factors that affect the debt value of including leverage,...
متن کاملPredictive Analytics
In today's economic climate where budget reductions are common, executives are under pressure to deliver profitable growth. Business leaders must identify and implement the critical items that will enable the enterprise to remain competitive. Methods and techniques long utilized in the actuarial department are being leveraged to improve many areas of the insurance operation. Will these methods ...
متن کاملProcess of Risk Analysis for Iranian Insurance Companies
The main challenge for any insurer/reinsurer has proved to be underwriting major refinery/Petrochemical risk. Insurers have already considered process risk management measures while accepting and evaluating the risks all over the world. Erstwhile petrochemical tariff was adopting experiencing methodology as basis for premium calculation in Iran. In the present de-tariff scenario decisions will ...
متن کاملDependent Loss Reserving Using Copulas
Modeling the dependence among multiple loss triangles has important implications for the determination of loss reserves, a critical element of risk management and capital allocation practices of property-casualty insurers. In this article, we propose a copula regression model for dependent lines of business that can be used to predict unpaid losses and hence determine loss reserves. The propose...
متن کامل