An analysis of the impact of corporate affiliation on life insurance company behavior

The purpose of this research is to analyze the impact of corporate affiliations upon the capital structure of affiliated life insurance companies. Life insurers can be affiliated in various ways with firms outside of the life insurance industry. Therefore, different affiliations are analyzed due to regulatory concerns that managers of unrelated firms will attempt to drain assets from affiliated life insurers. This research analyzes the impact of affiliations between life insurers and firms outside of the life insurance industry. Thus, the analysis determines if different corporate affiliations have different impacts on the capital structure of the affiliated life insurers.;To determine the potential effects of affiliation upon the capital structure of affiliated life insurance companies, a theoretical model of the capital structure decision is developed. The development of the theoretical model utilizes existing capital structure theory and applies it, with minor extensions, to life insurance companies. In the theoretical model, the optimal capital structure is a function of: the fixed costs of beginning insurance company operations, the opportunity costs of capital, and the demand by consumers for insurance company safety.;Multiple regression analysis is used to determine if a systematic relationship exists between the capital structure of a life insurance company and its affiliation with firms outside of the life insurance industry. The sample of life insurance companies used in the regression analysis consists of 61 mutual insurers and 138 capital stock life insurers. The regression analysis is not able to identify any systematic difference in capital structure based on the type of firm affiliated with the life insurer.