On the Lack of Participating Policy Usage by Stock Insurance Companies

Stock insurers can reduce or eliminate agency conflicts between policyholders and stockholders by issuing participating insurance. Despite this benefit, most stock companies don’t offer participating contracts. This study explains why. We study an equilibrium with both stock and mutual insurers in which stockholders set premiums to provide a fair expected return on their investment, and with a policyholder who chooses the insurance contract that maximizes her expected utility. We demonstrate that stockholders cannot profitably offer fully participating contracts, but can profitably offer partially participating insurance. However, when the policyholder participation fraction is high, the fair-return premium is so large that the policyholder always prefers fully participating insurance from the mutual company. Policies with lower levels of policyholder participation are optimal for policyholders with relatively high risk aversion, though such policies are usually prohibited by insurance legislation. Thus, the reason stock insurers rarely issue participating contracts isn’t because the potential benefits are small or unimportant. Rather, profitability or regulatory constraints simply prevent stock insurers from exercising those benefits in equilibrium

Building a Better Mousetrap: Enhanced Dollar Cost Averaging

This paper presents a simple, intuitive investment strategy that improves upon the popular dollarcost- averaging (DCA) approach. The investment strategy, which we call enhanced dollar-costaveraging (EDCA), is a simple, rule-based strategy that retains most of the attributes of traditional DCA that are appealing to most investors but yet adjusts to new information, which traditional DCA does not. Simulation results show that the EDCA strategy reliably outperforms the DCA strategy in terms of higher dollar-weighted returns about 90% of the time and nearly always delivers greater terminal wealth for reasonable values of the risk premium. EDCA is most effective when applied to high volatility assets, when cash flows are highly sensitive to past returns, and during secular bear markets. Historical back-testing on equity indexes and mutual funds indicates that investor dollar-weighted returns can be enhanced by between 30 and 70 basis points per year simply by switching from DCA to EDCA

The Effect of Unsuccessful Past Repurchases on Future Repurchasing Decisions

We find that managers are less likely to repurchase stocks when they lose money on past stock repurchases but find no robust evidence that past gains on repurchases influence future repurchasing activity. This asymmetric sensitivity is strongest for young CEOs and those with the shortest tenure. Also, future repurchases are more sensitive to past repurchase losses for CEOs whose previous lifetime experience with the stock market is unfavorable. The sensitivity of future repurchases to past losses costs firms, on average, about 3.7% per year. When this cost is decomposed into systematic and idiosyncratic components, we find that nearly half (1.8%) comes from mistiming idiosyncratic shocks. Past losses on repurchases have a significant and negative impact on the CEO’s future bonus and increase the likelihood that future CEO termination is involuntary. We also find that negative outcomes from past repurchases encourage the subsequent use of dividends. Our findings suggest that outcomes of past repurchases have economically significant consequences through both nonbehavioral (career concerns) and behavioral (snakebite effect) factors. Includes supplemental appendix

Climate Change and Market-Based Insurance Feedbacks

Climatic events have accounted for 91% of $1.05 trillion in insured costs for global catastrophic events from 1980 to 2016. Costs are driven by socio-economic development and increased frequency and severity of climatic disasters driven by climate change. Government policies to reduce systemic risk (e.g., cap-and-trade, carbon tax) have been a predominant approach for mitigation and adaptation. Alternatively, market-based incentives for climate change adaptation and mitigation already operate via the insurance industry to lessen impacts on society. Insurance feedbacks include changes in 1) premiums and insurance policies, 2) non-coverage, and 3) policy making and litigation. Alongside government policies, insurance feedbacks could be used to facilitate climate change adaptation and mitigation to a significant degree. Ultimately, a negotiated distribution of climate-related costs between the public and private insurance is needed

Reply to Nielsen et al. social mindfulness is associated with countries’ environmental performance and individual environmental concern

info:eu-repo/semantics/publishedVersio

From local social mindfulness to global sustainability efforts?

info:eu-repo/semantics/publishedVersio