This paper examines the stock market impact of captive insurance subsidiary formation on parent companies in the United Kingdom (UK) corporate sector. We report that the formation of an insurance captive has no effect on the financial, systematic and unsystematic risks of the parent company, irrespective of the parent's market capitalisation. In addition, there is weak evidence that the market has a negative view of the captive insurance decision. Finally, our results indicate that financial risk, agency costs of free cash flow, asymmetric information and market power have no effect on the stock market's reaction to the captive formation decision.

Using a panel data set (1997–1999) for 235 publicly listed companies in the People's Republic of China (PRC), this study tests empirically whether the purchase of property insurance mitigates principal-agent (agency) incentive conflicts. In contrast to prior studies, we first estimate a probit insurance participation decision model and then a fixed-effects insurance volume decision model (with Heckman's sample selection correction) in order to shed light on the determinants of both property insurance participation and volume decisions. Our results suggest that a major motivation for the corporate purchase of insurance in China appears to be the mitigation of agency conflicts. Additionally, various ownerships seem to have different impacts on the corporate purchase of insurance in China. Moreover, the results show that the same factor can have different impacts on the insurance participation and volume decisions, and that binding financial conditions may be a key factor accounting for such observed differences.

We examine the relation between outside board directors and six measures of financial performance using panel data for 1999–2012 drawn from the UK’s property-casualty insurance industry. We find that the proportion of outsiders on the board is unrelated to performance; rather it is outsiders’ financial expertise that has the most significant financial performance impact. In addition, superior performance can also be related to the financial expertise of inside directors, thereby reinforcing the importance of board-level financial expertise in the insurance industry. Our results have potential commercial and/or policy implications.

Using panel data for five main lines of insurance in the United Kingdom’s (UK) non-life insurance market we demonstrate that by increasing the level of reinsurance, primary insurers increase their product-market share at the expense of less reinsured rivals. We also observe that the influence of reinsurance and other financial variables on insurers’ growth in product-market share differs across lines of insurance business. We conclude that reinsurance performs an important strategic function in insurance markets through its impact on product-market outcomes in competitive insurance markets. Additionally, we find that leverage is the most important factor affecting product-market share at the aggregate business level of the insurance firm.

Using a unique insurance dataset for a sample of Chinese publicly listed companies for the period 1997 through 2003, this study tests the simultaneous linkages between debt capacity, cost of debt, and corporate property insurance. Our results suggest that, on the one hand, a higher cost of debt appears to motivate the use of more property insurance, but high leverage alone does not lead to the purchase of more property insurance. The latter finding might reflect the unique institutional setting of China, for example, where there is a low chanceof legally enforced company liquidation. Also, there is evidence that leverage can interact with tangible assets intensity and exert a positive conjoint effect on the corporate purchase ofproperty insurance. On the other hand, we find evidence that supports that property insurance helps expand insuring firms' debt capacity and helps lower their borrowing costs. However, themoderate evidence on the cost reduction effect suggests that lowering the borrowing cost is likely to be a concern secondary to facilitating corporate borrowing and thereby expanding debt capacity in corporate property insurance decisions in China. Overall, we conclude that debt capacity, cost of debt, and corporate insurance appear to be simultaneously related.

There are two main tax-related arguments regarding the use of reinsurance – the income volatility reduction and the income level enhancement arguments. The income volatility reduction argument contends that firms facing convex tax schedules have incentives to hedge in order to reduce the volatility of their annual taxable income and thereby lower expected tax liabilities [Smith, C.W., Stulz, R.M., 1985. Optimal hedging policies. Journal of Financial and Quantitative Analysis 19, 127–140]. The income level enhancement argument, advanced by Adiel [Adiel, R., 1996. Reinsurance and the management of regulatory ratios and taxes in the property–casualty insurance industry. Journal of Accounting and Economics 22, 207–240], is more specific to hedging via reinsurance. This perspective holds that reinsurance enhances current reported earnings via the receipt of reinsurance commissions and so increases tax liabilities. Consequently, insurance firms with high marginal tax rates should use less reinsurance than those with low marginal tax rates if tax matters. Prior studies using data on financial derivatives have produced mixed results on the validity of the first argument, while Adiel (1996) finds the second argument insignificant in his study of the use of reinsurance by a sample of United States (US) property–liability insurance firms. This study tests the two tax-related arguments using 1992–2001 data for a sample of United Kingdom (UK) life insurance firms. We find that UK life insurers with low before-planning marginal tax rates tend to use more reinsurance; in contrast, tax convexity is found to have no significant impact on the purchase of reinsurance and so the volatility-reduction argument is not supported.