Internal Governance, External Regulation And Risk Taking Behavior Of Insurance Company

In2007, the sub-prime mortgage crisis in the United States was caused by the global financial turmoil. At the beginning of this year, the U.S. Financial Crisis Inquiry Commission FCIC published a report on the outbreak of the financial crisis, they think the main reason that led to the financial turmoil is that there was a lot of vulnerability in many financial institutions, not only about the corporate governance, but also on risk management. To be a part of the financial system, the nature of insurance is to bear risk. Thus insurance companies should improve their risk management capabilities. Although taking risk is the reason of its existence and development, but if insurance company excessively taking risk, it will eventually make the insurance company fails, and seriously it may cause panic in the society as a whole, and cause systemic risk to the community or the enormous social costs.This paper is to research the characteristic of governance in insurance companies on the basis of the theory of corporate governance. In general corporate the conflict of interest is among corporate shareholders, managers, and creditors, however the conflict of interest is among shareholders, managers, policy holders, and regulatory authorities, and the conflict of interest between them decided the risk in the course of business of the insurance company. So we can divide the governance of insurance companies into two types, the external governance and internal governance. From the point of view of the conflict of interest, the shareholders have strong adventure motivation, but regulators stress safety and soundness of the insurance company. Shareholders and regulators in insurance company influence the risk selection of the executive through internal governance and external regulatory, whether the insurance company executives make excessive risk selection depends on the trade-off between the internal governance and external regulation. External regulatory and internal governance of the insurance company managers risk selection are not independent, and there are some interactions between them, different relationships (alternative or complementary) may have different effects on the risk of insurance companies.With the data of11property insurance companies from2007-2011, On the basis of empirical research we find that:(1) the higher the degree of external governance, the lower the risk of insurance companies (2) the higher the degree of internal governance, leverage risk, underwriting risk and investment risk are higher (3) If the external regulators replace internal governance, the risk of insurance companies is negatively correlated with the strength of the external regulation, and uncorrelated with internal governance.