Insurance Industry America analysis
No single event in recent years have focused public attention on the importance of insurance is very much in the September 11 terrorist attacks, disasters, insurance companies, which lead to the truth. to withdraw or request cancellation of coverage for terrorist acts that involve the actions of the state, most of which have been approved. At the same time, insurance companies and real estate developers, among others, has asked the federal government to provide reinsurance to insurance companies, which may again be mainly to provide coverage of terrorism, without fear that the next event. large to wipe them out. In their responses, and President Bush signed into law the Terrorism Insurance Act of 2002 (TRIA), as the insurance company will pay premiums to the government "EX. Post" after such an event again. Under TRIA, the federal government has agreed to pay 90 percent of the loss of an insurance company that insured losses are absorbed by 7 per cent of the premium for this. (Referred to as level "therapeutic") with TRIA is set to expire next year, between calls to extend it, this seems a good time to review the Kent Smetters work on legislation that the Treasury Department, while off. Wharton School is particularly qualified to carry out this review.Smetters was very skeptical about the need to provide reinsurance for the government - terrorism, of course, he argues that the policies of other governments that are involved in unavailability. Insurance against terrorism after 9 / 11 and the inadequacy of insurance coverage for other types of disasters.Government fiscal policies such as the prevention of insurers to set aside tax-deductible reserves for disaster. And the political oversight and accounting of the government, making it harder for insurance companies, the risks are great Smetters securitise believe that, in the absence of these restrictions, investment banks and insurance companies to help develop capital markets. to spread the risk of terrorism and other catastrophic losses, he notes that the loss of ten times larger than the loss of $ 40000000000 11 September are not uncommon in world capital markets. In fact, the financial markets of the United States only routine gain or lose $ 100 billion. And often more than a billion dollars a month.Smetters argues that the reform of these policies will eliminate the need for the government to provide terrorism insurance. He believes that the full insurance and capital markets can absorb a large, even catastrophic losses without undue stress.Some of the most common arguments in favor of direct government intervention in the terrorism insurance market, including the difficulty of predicting future losses in the magnitude of the losses caused by terrorist acts. potential asymmetry of information between the government and the private sector and the fact that many people have no reason to neglect. Insurance because they believe that the government will bail out after a significant loss Smetters review these arguments and found that the majority because they can not explain why the private market solution is inefficient. But he did not accept. However, the force could be a reason for a certain risk that is difficult to spread the investment in capital market and the bear by groups such as landowners and farmers, the government will probably bail out. After losing big time.Brokers and insurance "losses that can not be verified."Despite the tightly worded contracts, insurance losses are often followed by arguments if the coverage applies, and if so to what extent. In fact, according to Professor Neil Doherty and Alexander Muermann The Wharton School, and insurance companies now seem to be easier than ever to claim the big race.Insurance companies often try to avoid controversy. Because they allow investors to obtain information about their customers, large and do not want to lose that insurers are motivated to make appropriate service provider to the costs of loss. is to identify and avoid the conflict, some insurance companies can also help clients in their loss control services, engineering, or reduce the risk.Doherty points out, however, that because Muermann insurance brokerage market is highly concentrated, the broker market, business results from their insurer have a strong incentive to avoid the reputation of being. willing to pay the claim, otherwise the insurance company may lose not only for future reference. But some of the existing books of business and the insurance company known as the debtor is not ready to be delivered to the commission claim up to steer in the direction of their activities. heIn short, the highly concentrated nature of the brokerage industry is likely to work in favor of the insured, if and when they experienced a loss can not be verified. This may be a rare exception that a highly concentrated market structure, which will work for the client, rather than production.Included in the insurance sector in Europe.The development of a European single market has led to mergers and acquisitions between national companies in Europe and had in the past ten years. The insurance industry was no exception to this pattern. In the final document presented at the conference, W side of the Wharton School David Cummins and Mary Weiss of Temple University to determine whether these mergers and acquisitions to create value for shareholders.In a similar study of mergers in the U.S. market, such as banks, analysts have found a predictable pattern: while the stock prices of companies that are usually the result after all the proposed merger. The price of shares in the acquiring company remain the same or even drop this format held for the merger of insurance in Europe?Cummins and Weiss analysis of stock prices before and after the merger, in general, in Europe, confirms that this pattern. Although mergers and acquisitions, insurance does not change the value for the shareholders of buyers one way or another merger in the same country that produced the loss of shareholders' equity on average significantly. In contrast, the target company has increased their value as national cross-border mergers and shareholders'. However, much more to the transaction, the companies that do business in that country. In summary, the combined operations across the border was clearly visible in the net profit attributable to shareholders (acquirers and targets as well), but the merger of the country seems to be a tendency to destroy rather than create value for shareholders.These results are relevant for policy makers, especially those relating to market structure. For example, shareholders of profits caused by the digging of trenches of market power rather than efficiency in the intervention of antitrust authorities to ensure the insurance companies to offer cross-border can not be direct competitors to begin with. The combination of these should give rise to antitrust concerns from mergers in the country. (Especially the insurance market is concentrated), which differs from the banking sector, the National Bank regulators tend to discourage cross-border merger of national insurance control rarely intervene to protect the national championship. These results are useful for investors and managers of insurance companies consider the type of acquisition is more likely to produce an efficient and market opportunities to increase and make a profit for shareholders
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