Board structure, incentives, risk taking and performance in US insurers

This thesis examines board structure and incentives in relation to risk taking and performance in listed US insurers over 2003-2010. Using a sample of listed US insurers, this thesis shows that board independence, gender diversity, busy boards, board compensation, and CEO compensation are positively related to the risk taking and performance while no strong relation is found for experienced boards and insurer risk taking or performance. The results are robust to a number of risk and performance proxies. The several estimation methods are applied to address the endogeneity, unobserved heterogeneity, cross-sectional correlation, and outlier problems. Overall, this thesis contributes to both the general corporate governance and insurance literature. The gender diversity, experienced boards and incentives findings are new in any context. The board independence and busy boards results are also new in the insurance context, and different from prior non-financial and banking governance literature. These findings should prove to be of interest to a number of stakeholders. Academics should consider the inter-linkages among board structures and incentives when designing future research on insurance governance and compensation. Investors may benefit from buying shares in insurers with more independent and diverse boards that are compensated more with stocks and options rather than with just cash. Finally, these results suggest that regulators should preclude directors from becoming too entrenched with excessive stock based compensation.