Insurers' Expansion into Banking: A Look at Operating Returns

We investigate whether insurers can improve their operating risk-return profile by adding commercial loans, a banking product, in the traditional insurance product mix. This analysis is important for two reasons. First, the Gramm-Leach-Bliley Act of 1999 allows insurers to buy and operate banks. Sec...

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Bibliographic Details
Published inJournal of insurance issues Vol. 25; no. 1; pp. 1 - 23
Main Authors Schellhorn, Carolin D., Scordis, Nicos A.
Format Journal Article
LanguageEnglish
Published Northridge Western Risk and Insurance Association 01.04.2002
Western Risk & Insurance Association
Subjects
Bank holding companies
Bank loans
Banking industry
Banks in insurance
Commercial banks
Commercial credit
Commercial lenders
Cost control
Earthquake insurance
Employee insurance
Financial holding companies
Financial services
Financial Services Modernization Act 1999-US
Insurance industry
Insurance providers
Investment risk
Liability insurance
Loans
Moral hazard
Product mixes
Regulation of financial institutions
Statistical analysis
Subsidiaries
Underwriting
United States > US
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Summary:We investigate whether insurers can improve their operating risk-return profile by adding commercial loans, a banking product, in the traditional insurance product mix. This analysis is important for two reasons. First, the Gramm-Leach-Bliley Act of 1999 allows insurers to buy and operate banks. Second, existing research finds that banks can improve their risk-return profile by adding insurance products, but offers no guidance on whether insurers might benefit from an expansion into banking. We use individual product data to construct insurance-only portfolios of products and insurance-banking portfolios of products. Analysis of portfolio operating returns and their standard deviations indicates that insurer-banks are unlikely to outperform fullline insurers that have carefully selected their product mix. The mere expansion of an insurance firm into banking does not necessarily result in a competitive operating riskreturn profile.
ISSN:1531-6076
2332-4244