The Relationship Between Firm Growth, Ownership Structure, and Performance: An analysis of U.S. property-liability insurers
DOI:
https://doi.org/10.58886/jfi.v23i3.9500Keywords:
Firm Growth, Ownership Structure, Profitability, Insurance Industry, Property-Liability InsurersAbstract
This study investigates the relationship between firm growth and profitability in the U.S. insurance industry, with a focus on differences between stock and mutual insurers. While both forms address stakeholder incentive conflicts, they differ in ownership structure, capital access, and risk preferences. Mutual insurers, owned by policyholders, prioritize long-term stability and operate with limited financial flexibility. In contrast, stock insurers, driven by shareholder interests, have greater access to capital markets and may pursue riskier strategies to boost profitability. Although prior research on profit persistence (POP) in banking and other industries has explored the role of competition, information asymmetry, and firm-specific factors, limited attention has been given to the insurance sector—particularly regarding ownership structure. This study addresses this gap by examining how financial performance and strategic priorities vary between stock and mutual insurers, offering new insights into the determinants of profitability and growth in the insurance industry.
References
Baker, S. R., N. Bloom, and S.J. Davis (2016) “Measuring Economic Policy Uncertainty,” Quarterly Journal of Economics, 131(4), 1593-1636. DOI: https://doi.org/10.1093/qje/qjw024
Baranoff, E. and T. Sager (2003) “The Relations among Organizational and Distribution Forms and Capital and Asset Risk Structures in the Life Insurance Industry,” Journal of Risk and Insurance, vol. 70(3), 375-400. DOI: https://doi.org/10.1111/1539-6975.t01-1-00057
Barth M.M. and D.L. Eckles (2009) “An Empirical Investgation of the Effect of Growth on Short-Term Changes in Loss Ratios,” Journal of Risk and Insurance, vol. 76(4), 867-885. DOI: https://doi.org/10.1111/j.1539-6975.2009.01323.x
Berger, A.N., DeYoung R., Genay H., and Udell, G.F. (2000). Globalization of Financial Institutions: Evidence from Cross-Border Banking Performance. Brookings-Wharton Papers on Financial Service, 3, 23-123. DOI: https://doi.org/10.1353/pfs.2000.0001
Chen, J. and G. Waters (2017) “Firm Efficiency, Advertising and Profitability: Theory and Evidence,” The Quarterly Review of Economics and Finance, vol. 63, 240-248. DOI: https://doi.org/10.1016/j.qref.2016.04.004
Choi, B. Paul (2019) “Advertising, Market Concentration, and Firm Performance on the Distribution System, International Journal of Business and Finance Research, vol. 13, Iss. 2, p. 21– 32.
Choi, B. Paul and J. Jeong (2020) “The Relationship Between Growth and Profitability: An Empirical Analysis of US Property and Liability Insurers,” Journal of Finance Issues, vol. 20, Iss. 3: 26–39. DOI: https://doi.org/10.58886/jfi.v20i3.4754
Cohen, A., (2001) “Asymmetric Information and Learning in the Automobile Insurance Market,” Harvard University Working Paper.
Cummins, J.D. and H. Zi (1998) “Comparison of Frontier Efficiency Methods: An Application to the U.S. Life Insurance Industry,” Journal of Productivity Analysis, vol. 10, 131-152. DOI: https://doi.org/10.1023/A:1026402922367
Cummins, J.D., M.A. Weiss, and H. Zi, (1999) “Organizational Form and Efficiency: The Coexistence of Stock and Mutual Property-Liability Insurers,” Management Science, 45: 1254-1269. DOI: https://doi.org/10.1287/mnsc.45.9.1254
D’Arcy, S.P. and R.W. Gorvett (2004) “The Use of Dynamic Financial Analysis to Determine Whether an Optimal Growth Rate Exists for a Property-Liability Insurer,” Journal of Risk and Insurance, 71, 583-615. DOI: https://doi.org/10.1111/j.0022-4367.2004.00105.x
Doherty, N.A. and G. Dionne (1993) “Insurance with Undiversifiable Risk: Contract Structure and Organizational Form of Insurance Firms,” Journal of Risk and Uncertainty, 6: 187-203. DOI: https://doi.org/10.1007/BF01065358
Fier, S.G. and D.M. Pooser (2016) “Advertising Effectiveness for Financial Services Firms: Evidence from the Life Insurance Industry,” Journal of Insurance Issues, vol. 39(2), 137-168.
Goddard, J., Molyneux, P., and Wilson, J.O.S. (2004) “The Profitability of European Banks: A Cross-Sectional and Dynamic Panel Analysis,” The Manchester School, 72 (3), 363-381. DOI: https://doi.org/10.1111/j.1467-9957.2004.00397.x
Hardwick, P. and M. Adams (2002) “Firm Size and Growth in the United Kingdom Life Insurance Industry,” Journal of Risk and Insurance, 69, 577-593. DOI: https://doi.org/10.1111/1539-6975.00038
Hirsch, S. (2018) “Successful in the Long Run? A Meta-Regression Analysis of Persistent Firm Profits,” Journal of Economic Surveys, 32 (1), 23-49. DOI: https://doi.org/10.1111/joes.12188
Jin, L., G. Lai, and C.L. Ho (2022) “An Analysis of Post-Demutualization in the Property-Liability Insurance Industry,” The Geneva Papers on Risk and Insurance – Issues and Practice, 47, 279-320. DOI: https://doi.org/10.1057/s41288-021-00231-9
Ma, Y. and N. Pope (2003) “Determinants of International Insurers’ Participation in Foreign Non-Life Markets.” Journal of Risk and Insurance, vol. 70, Iss. 2, 235-248. DOI: https://doi.org/10.1111/1539-6975.00058
Mayers, D. and C. Smith, Jr. (1988) “Ownership Structure Across Lines of Property-Casualty Insurance,” Journal of Law and Economics, 31: 351-378. DOI: https://doi.org/10.1086/467160
Mayers, D. and C. Smith, Jr. (1994) “Managerial Discretion, Regulation, and Stock Insurance Company Ownership Structure,” Journal of Risk and Insurance, vol. 61(4), 638-655 DOI: https://doi.org/10.2307/253642
Santomero, A.M. and D.F. Babbel (1997) “Financial Risk Management by Insurers: An Analysis of the Process,” Journal of Risk and Insurance, 64, 231-270. DOI: https://doi.org/10.2307/253730
Stigler, G.L. (1964) “A Theory of Oligopoly,” Journal of Political Economy, vol. 72(1), 44-61. DOI: https://doi.org/10.1086/258853
Viswanathan, K.S. and J.D. Cummins (2003) “Ownership Structure Changes in the Insurance Industry: An Analysis of Demutualization,” Journal of Risk and Insurance, vol. 70(3), 401-437. DOI: https://doi.org/10.1111/1539-6975.t01-1-00058
