Capital Structure and Corporate Form of Ownership: An Investigation of the US Life Insurance Industry

Hassan A. Said

This paper empirically investigates organizational form of corporate ownership and capital structure of the U.S. life insurance industry and contributes to the current debate of financial policy differences between stock and mutual life insurers. The ownership factor is expected to have implications for different capital structure, underwriting, and investment policies. Other influential factors are expected to impact policies differences. Accordingly, a set of testable hypotheses is developed to examine policies differences between the two insurers. Controlling these other influential factors, the corporate ownership form is found to be significant in two policy areas: capital structure and investment. The empirical results yield support to the following conclusions. First, mutual life insurers maintain significantly higher financial leverage than stock insurers. Second, the proportion of investment in the asset categories of bonds, mortgage loans, and policy loans are higher for mutuals. No systematic differences are found in the underwriting policy.

JEL Codes: G32, G22, and M41

DOI : http://dx.doi.org/10.21102/graf.2014.09.52.06