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Do bank-affiliated P&C insurers perform better? An empirical investigation

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Abstract

This article analyses the impact of bank affiliation on the performance of P&C insurance companies by examining a sample of Italian P&C insurers operating during the 2005–2015 time frame. After completing a descriptive analysis to single out bank-affiliated insurers’ specific features, we perform a multivariate regression in order to ascertain whether affiliation affects operating profitability. Our findings show that bank affiliation at best does not entail any cost advantage while altering the influence of underwriting results on firm performance. The way this happens deviates from what has been found for life insurance operations, where bank affiliation also has an impact. Our results suggest that the competitive levers that bank-affiliated insurers exploit in the P&C business are different from those adopted by other firms and that these levers are specific to non-life insurance activity.

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Notes

  1. An exception to this general rule are PPI products, which are policies designed by an instructed insurer to protect the lender from the borrower’s default. Bundled with mortgages, these policies cover different risks such as the borrower’s death and unemployment. U.K. and French banks started selling PPIs at the beginning of the 1990s.

  2. Group affiliation is the norm for Italian insurers.

  3. For example, Mediobanca, which is a bank and heads a financial group whose operations encompass commercial banking, was Assicurazioni Generali’s main shareholder at the end of 2017, owning about 13% of the insurer’s common equity.

  4. For example, bank-affiliated insurers’ products are probably designed to cater to the needs of their parent bank’s customers. Therefore, we expect that their product mix is more concentrated in business lines that cover risks run by individuals.

  5. According to ANIA (2016), bank captive companies in 2015 collected 40% of life insurance premiums in Italy.

  6. In our paper we are not able to consider PPI products in a specific way, as we do not have information on them.

  7. See Praetz (1985) for a survey of the literature on the topic and also Cummins and Nini (2002) and Liebenberg and Sommer (2008).

  8. At a descriptive level only, we checked whether the weight of financial debt was different depending on the insurer affiliation, and we found that bank-affiliated insurers tend to finance a higher percentage of their assets with it. As we did not perform a detailed examination of this topic in our multivariate analysis, we chose not to report this result for the sake of brevity. It is of course available upon request.

  9. Before 1979 operating in both life and non-life insurance was possible, and companies created before that year were allowed to keep the privilege.

  10. This case seems to have applied to PPI policies in the U.K.—see FSA (2012). A survey was conducted in Italy in 2014 to explore the topic—see IVASS (2016) for its findings.

  11. See note 8 on this topic.

  12. Wald statistic value is 15.07.

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Authors and Affiliations

  1. Finance Department, Bocconi University, Via Roentgen 1, 20100, Milan, Italy

    Lucia Spotorno

  2. Dipartimento di Scienze economiche e aziendali, Università degli Studi di Sassari, Via Muroni 25, 07100, Sassari, Italy

    Ornella Moro

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  1. Lucia Spotorno
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Correspondence to Lucia Spotorno.

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Spotorno, L., Moro, O. Do bank-affiliated P&C insurers perform better? An empirical investigation. Geneva Pap Risk Insur Issues Pract 45, 225–255 (2020). https://doi.org/10.1057/s41288-019-00140-y

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