An analysis of post-demutualisation in the property–liability insurance industry

Using a quasi-natural experiment, we examine how demutualisation affects demutualised insurers’ capital, organisational flexibility and alignment of managerial incentives post-demutualisation. First, our results show demutualised insurers have faster surplus growth than matching insurers post-demutualisation. However, the surplus growth differs between demutualised insurers with and without surplus notes. Specifically, the evidence shows that demutualised insurers with surplus notes experience long-term surplus growth, while demutualised insurers without surplus notes experience short-term surplus increases. Second, we find that increased organisational flexibility facilitates merger and acquisition activities for demutualised insurers and helps them to pursue growth and diversification. We find that 51% of demutualised stock insurers become targets in the conversion year. Finally, we find that demutualised insurers have lower underwriting expenses and underwrite more in commercial lines post-demutualisation. Overall, our evidence shows that demutualisation has a positive impact on surplus growth, organisational flexibility and the alignment between managerial incentives and owners' interests.