The Effect of Holding Group Performance and Reputation on its Insurance Subsidiaries

Insurance regulation in the US changes over time in response to changes in the insurance market. U.S. insurance regulators currently have an interest in studying how change in holding group risks impact subsidiary insurance companies. This dissertation estimates two empirical models to assess the impact of the holding group performance on its insurance company subsidiaries. The first models the profitability of insurance companies as a function of its holding group performance. Secondly, a capital asset pricing model of market risk is estimated using an interaction term between holding group performance and beta. The results show that holding group performance has a causal effect on insurance subsidiary profitability and risk, but that the effect is dependent on the type of insurance business. Other factors play a role in subsidiary performance besides the parent company's financial performance. A survey was conducted to gauge management's response to a negative change in the reputation of the holding group.