Journal of Risk & Insurance · 1997 · 10 citations · 0 references
Financial DataFinancial Risk ManagementInsolvency AlternativeInsurance IndustryAntitrust PolicyManagementFinancial IntermediationTimely MergerInsurance RegulationsInsuranceAntitrust EnforcementMergers And AcquisitionsFinancial ManagementAccountingLiability ManagementFinanceInsurance MarketsInsurance LawBusinessMerger EnforcementTimely Mergers
Mergers and acquisitions in the insurance industry are typically not disclosed by regulators, investors, or managers. The study shows that accounting and financial data explain merger or insolvency decisions and that a timely merger can be a viable alternative to insolvency. The authors use a logit model on solvent and insolvent insurers to estimate insolvency probabilities for merged firms and identify attributes distinguishing merged distressed insurers from insolvent ones. Timely mergers provide an alternative to insolvency for 20–46 % of merged insurers—higher than in other industries—and investors acquiring distressed insurers suffer significant negative returns, lower than those selling distressed insurers.
The reasons for mergers and acquisitions in the insurance industry are usually not disclosed by regulators, investors, or managers. This study explicates that accounting and financial information can explain merger or insolvency decisions in the industry. The study emphasizes that a timely merger can serve as a viable alternative to insolvency. We perform a logit analysis of solvent and insolvent insurers to generate the probability of insolvency for each merged insurer. Timely mergers serve as an alternative to insolvency for 20 to 46 percent of the merged insurers, which is higher than that found in other industries. The study identifies attributes that distinguish merged distressed insurers from insolvent insurers. Investors in firms that acquire distressed insurers earn significant negative returns and earn significantly lower returns than investors in firms that sell distressed insurers.