Risk taking behaviour and managerial ownership in the United States life insurance industry

Abstract

This study examines the relation between risk and managerial ownership for a sample of life insurance companies in the United States. Evidence is found that the level of life insurance company risk is dependent on the level of managerial ownership. Specifically, as the level of managerial ownership increases, the level of risk increases supporting a wealth transfer hypothesis over a risk aversion hypothesis. These results are robust across several risk measures. The findings suggest that when compensation packages encourage higher levels of managerial ownership, manager and stockholder interest converge. With respect to regulation, the results suggest that regulators can control the risk taking activities of life insurers by requiring a separation between ownership and management.

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