An in-depth look at the increasingly significant convergence between the insurance industry and the capital markets. This important publication, by two premier financial experts, explores the unique convergence of finance and insurance. The book covers the basics of property-casualty insurance, securitizing insurance risks, looks at life insurance in the United States and ALM in insurance. It addresses the questions and concerns of investment banks, brokerage firms and the insurance/reinsurance sector itself, examines ongoing trends and issues, and how current market pressures on insurance companies do not just create challenges but actually point the way to future promising developments.

Property-liability insurance rates for most lines of business are regulated in about one-half of the states. In most cases, this me ans that rates must be filed with the state insurance commissioner and approved prior to use. The remainder of the states have various forms of competitive rating laws. These either require that rates be filed prior to use but need not be approved or that rates need not be filed at all. State rating laws are summarized in Rand Corporation (1985). The predominant form of insurance rate regulation, prior approval, began in the late 1940s following the V. S. Supreme Court decision in United States vs. South-Eastern Underwriters Association, 322 V. S. 533 (1944). This was an anti trust case involving one of four regional associa tions of insurance companies, which constituted an insurance cartel. The case struck down an earlier decision, Paul vs. Virginia, 8 Wall 168 (1869), holding that the business of insurance was not interstate commerce and hence that state regulation of insurance did not violate the commerce clause of the V. S. Constitution. Following South-Eastern Underwriters, the Vnited States Congress passed the McCarran-Ferguson Act, which held that continued state regulation and taxation of insurance was in the public interest. The act also held that the federal antitrust laws would not apply to insurance to the extent that the business was adequately regulated by state law. (See V. S. Department of Justice 1977.

The first part of the dissertation investigates cost experience in the US life and health insurance industry over the period 1998-2012. We generally test the difference in expenses among different distribution systems, which mainly consists of independent agency, broker, career agency, exclusive agency, and direct writing. We check to see if cost, revenue and profit efficiency differences are associated with different distribution methods. Cost, revenue, and profit efficiencies are estimated by Data Envelopment Analysis. Unlike the results in the property and liability insurance industry, the cost difference is insignificant among distribution systems. Results on cost efficiency and revenue efficiency support the market imperfection hypothesis, which says that the market imperfections such as entry barriers, price regulation, or search costs cause the coexistence of different distribution systems. The second part of the dissertation examines the relationship between mergers and acquisitions (M&As), and underwriting cycles in the P-L insurance industry. In a soft market, capital is relatively high. This leads to an increase in the number of M&A transactions and the probability that managers conduct non-value-increasing M&As. We test this proposition by analyzing the associations between volumes of M&A deals, and returns associated with M&As and underwriting cycle. The results show that the numbers of M&As are negatively related with the premium rate changes and positively related with changes in the combined ratio. We also find that the cumulative abnormal returns around the announcement date of M&As are smaller for the shareholders of insurer acquirers in a soft market. Even more, we find that the market reaction of M&As is less sensitive to agency problems in a hard market than in a soft market.

The Geneva Association and Risk Economics The Geneva Association The Geneva Association (International Association for the Study of Insurance Economics) commenced its activities in June 1973, on the initiative of twenty-two members in eight European countries. It now has fifty-four members in sixteen countries in Europe and in the United States. The members of the association are insurance companies which provide financial support for its activities. The aims and strategy of the Geneva Association were clearly defined in 1971 by the founding committee. They were set forth in the first report to the Assembly of Members in 1974: "To make an original contribution to the progress of insurance by objective studies on the interdependence between economics and insurance." In pursuit of this objective, the Association strives to place insurance problems in the context of the modern economy and to overcome the antagonism between different groups and institutions by showing that they all have a common interest in tackling the problem of risk in a changing world. In consequence, the studies made by the Association had to move away from the subjects familiar to insurance professionals and explore related fields, dealing with opinions and behavior falling outside the profession's vii FOREWORD viii traditional framework of analysis. It is in this direction that the Association's preoccupations have been directed from the beginning, towards areas in which insurance activities come into contact with those of other economic sectors such as government, banking, manufacturing, and households.