Mutual versus stock insurers: Fair premium, capital, and solvency

Arbeitspapier

Mutual insurance companies and stock insurance companies are different forms of organized risk sharing: policyholders and owners are two distinct groups in a stock insurer, while they are one and the same in a mutual. This distinction is relevant to raising capital, selling policies, and sharing risk in the presence of financial distress. Up-front capital is necessary for a stock insurer to offer insurance at a fair premium, but not for a mutual. In the presence of an ownermanager conflict, holding capital is costly. Free-rider and commitment problems limit the degree of capitalization that a stock insurer can obtain. The mutual form, by tying sales of policies to the provision of capital, can overcome these problems at the potential cost of less diversified owners.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper ; No. 2006/26

Classification and Topics

• Classification: Wirtschaft ; Insurance; Insurance Companies; Actuarial Studies ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Ownership Structure ; Insurance ; Qwner-Manager Conflict ; Capital, Default ; Versicherung ; Privatversicherung ; Eigentümerstruktur ; Versicherungsprämie ; Eigenkapital ; Betriebliche Liquidität ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Laux, Christian ; Muermann, Alexander
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/25492
• URN: urn:nbn:de:hebis:30-38003