Determinants of Capital Holdings: Evidence from the Canadian Property/Casuality Insurance Industry (ABSTRACT)
Carayannopoulos, P., & M. Kelly
published: 2004 | Research publication | Refereed Journals - Finance
Carayannopoulos, P., & M. Kelly (2004), "Determinants of Capital Holdings: Evidence from the Canadian Property/Casuality Insurance Industry", Journal of Insurance Regulation, 23 (2), 45-66.
ABSTRACT: Canadian property/casualty insurers often view statutory capital requirements as excessive, whereas the regulator is more concerned with short and long term capital adequacy. The objective of this paper is to explore the capital holdings of Canadian property/casualty insurers relative to regulatory requirements and firms' risk exposures. It is found that the majority of variables that are relevant predictors of capital holdings of US insurers do not explain holdings of Canadian insurers. Two possible explanations are that either firms determine their capital holdings by adding a margin to the minimum regulatory requirements rather than on the basis of their risk characteristics, or that the Canadian marketplace is significantly different from the US marketplace that these broad risk characteristics do not apply to Canadian firms. Furthermore, no support is found for the argument that higher capital levels produce lower returns on equity for firms.
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revised Nov 6/07
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