Premium
Determinants of Corporate Diversification: Evidence From the Property–Liability Insurance Industry
Author(s) -
BerryStölzle Thomas R.,
Liebenberg Andre P.,
Ruhland Joseph S.,
Sommer David W.
Publication year - 2012
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2011.01423.x
Subject(s) - diversification (marketing strategy) , business , line of business , pooling , liability , stock market , monetary economics , financial economics , economics , finance , business model , marketing , business relationship management , artificial intelligence , computer science , electronic business , paleontology , horse , biology
This article analyzes variations in line‐of‐business diversification status and extent among property–liability insurers. Our results show that the extent of diversification is not driven by risk pooling considerations; insurers operating in more volatile business lines do not diversify more. Diversification can rather be explained by the benefits of internal capital markets and barriers to business growth like market size and concentration. In our analysis, we distinguish between related and unrelated diversification. Using a measure of unrelated line‐of‐business diversification we find the first support for the diversification prediction of the managerial discretion hypothesis that mutual insurers should be less diversified than stock insurers. While mutual insurers tend to exhibit higher levels of total diversification, they engage in significantly less unrelated diversification than do stock insurers.