The Demise of the Mutual Organizational Form: An Investigation of the Life Insurance Industry

We investigate the role of organizational structure in financial services markets by examining the U.S. life insurance industry. Traditionally, stock and mutual life insurers were equally represented, but now the industry is mainly composed of stock firms. We find operational efficiency, access to capital, and tax savings are important determinants for this shift. The incentive to demutualize differs by the type of conversion: full demutualization is chosen for efficiency and access to capital reasons and partial conversion, using a mutual holding company, is chosen for tax savings. Firm operational efficiency improves after conversion. We also find the efficiency of the stock organizational form dominates that of the mutual structure during our sample period, 1995 to 2004. Copyright (c) 2010 The Ohio State University.

The robustness of output measures in property-liability insurance efficiency studies

We empirically examine two methods for measuring output in property-liability insurer efficiency studies: the value-added approach and the "flow" (or financial intermediation) approach. The approaches are not mutually consistent. The value-added approach is closely related to traditional measures of firm performance, but the flow approach is not. In addition, efficient value-added approach firms are less likely to go insolvent, while firms characterized as efficient by the flow approach are generally more likely to fail. We also find that the theoretical concern regarding the value-added approach's use of losses as a measure of output is not validated empirically.Frontier efficiency Insurance Data Envelopment Analysis (DEA) Range Adjusted Measure (RAM)