The Economics of Property-Casualty Insurance presents new research and findings on key aspects of the economics of the property-casualty insurance industry. The volume explores the industrial organization, regulation, financing, and taxation of this business. The first paper, on external financing and insurance cycles, contains a wealth of information on trends and patterns in the industry's financial structure. The last essay, which compares performance of stock and mutual insurance companies, takes a fresh look at the way a company's organizational structure affects its responses to different economic situations. Two papers focus on rate regulation in the auto insurance industry, and provide broad overviews of the structure and economics of the insurance industry as a whole. Also addressed are the system of regulating insurance companies in the United States, who insures the insurers, and the effects of tax law changes in the 1980s on the prices of insurance policies.

This dissertation consists of two topics. Chapter 1 explores the relationship between U.S. Property-Casualty (P/C) insurers' underwriting risk, investment risk, and leverage risk, using data from 1998 to 2013. I test the trade-off hypothesis using a simultaneous equation model framework with partial adjustment effects. The three equations model intend to examine the interrelations between insurers' leverage and two measures of firm risks: underwriting risk and investment risk. The empirical evidence, various to different sample periods and model specifications, suggests there is no significant relationship existing between insurers' underwriting risk and investment risk. But these two types of risks are both significantly and negatively related to the leverage ratio. The overall results imply that insurers tend to tradeoff leverage risk and underwriting risk/investment risk, but it appears that they have not taken an integrated approach between the total level of underwriting risk and investment risk yet. The second part of this dissertation empirically investigates the impact of credit risk on insurers' reinsurance demand, using data on the U.S. P/C insurance industry from 2000 to 2014. I mainly explore how insurers' credit rating status and downgrade risk affects their reinsurance demand. Using a two-stage least square (2SLS) regression model, I find that low-rated insurers are associated with a higher utilization of reinsurance. In addition, insurers that are downgraded in the previous year tend to have a higher reinsurance demand than the others. Results also show that downgraded group-affiliated insurers tend to significantly increase their internal reinsurance demand from the group-affiliated members while decreasing the purchase of external reinsurance significantly. In general, I find that insurers' reinsurance demand is affected by their credit rating and downgrade risk.