||Impacts of Deregulation on Property and Casualty Insurers' Pricing and Risk Taking: Empirical Evidence in Japan
2016-03 , Hitotsubashi University Center for Financial Research
The purpose of this paper is to examine empirically the effects of rate-deregulation on Japanese Property and Casualty (P/C) insurers' pricing and risk-taking behaviors. As long as we know, there is little empirical evidence of the determinants of risk-taking at P/C insurance companies in Japan. Applying the basic ideas from the field of banking, we investigate the factors affecting risk-taking at P/C insurance companies. We find that the price setting at Japanese P/C insurers are decreased after the deregulation. In contrast, we find the risk levels of Japanese P/C insurers are generally increased after the rate-deregulation. However, franchise value that is measured by simple Q contributes adversely to P/C insurer risk-taking only before the deregulation. Lastly, we find that P/C insurers that belong to keiretsu groups have reduced the insurer rates but increased risk taking after the deregulation. In this sense, the impacts of deregulation are higher for P/C insurance companies that belong to the Keiretsu groups.