An Assessment of Property-Liability Insurer Performance

• Main Author: Marais, Johannes Coetzee
• Format: Dissertation
• Language: English
• Published: ProQuest Dissertations & Theses 01-01-2022
• Subjects: Economics; Finance
• ISBN: 9798834005513

This dissertation consists of two essays that examine the financial performance of property-liability insurance firms with common-stock ownership structure. The first essay considers insurance float, or money that insurers hold but do not own. After formally defining insurance float, a thorough examination of the amount, cost, and benefit of insurance float follows. Insurance float is found to hold positive economic value. The proportion of invested assets attributable to insurance float is also found to have a bearing on the investment risk taken by insurers. The analysis provides the first explicit examination of insurance float in the academic literature and provides an additional point of view on the determinants of insurer value.The second essay extends the assessment of insurer performance to consider the stock-market reaction to insurer operations. An insurance-specific asset pricing model is specified based on the deconstruction of aggregate insurer profitability into profit respectively derived from underwriting, investing, and non-operating activities. Both the market return and its spread from the return on the insurance sector, the book-to-market ratio, and the prior-month return are found to be priced factors for insurance stock. It is contended, however, that the inclusion of return-on-equity as a whole does not adequately explain the expected stock return for insurers, but instead the deconstruction thereof into its constituent parts. The investment return earned by insurers is found to have particular relevance in explaining the cross-section of expected stock returns in the property-liability insurance industry.