Agency theory and life insurer ownership structure

This article uses the insights of agency theory to analyze ownership structures in the life-health insurance industry. We examine operational, financial, and institutional determinants of ownership structure. We simultaneously test hypotheses regarding the owner-manager incentive conflict and the owner-policyholder incentive conflict. Our results demonstrate systematic differences between the activity choices of stock life insurers and mutual life insurers, consistent with the managerial discretion hypothesis. We also find that mutuals are more likely to be licensed in New York, stock firms are more likely to be organized as groups, mutuals are more likely to have high A. M. Best ratings, and older insurers are more likely to be mutuals.