A Study Of The Impact Of Multimarket Contact On The Financial Stability Of Property And Casualty Insurers

In recent years,China’s fi~Ana~Bnci~Sal i~Tnd~Rustr~Ay h~Cas ~Tdeveloped at a rapid pace,and the reform and development of the financial sector has made a major breakthrough.in FY2022,the premium income of China’s property insurance companies was close to RMB1.5 trillion,with a year-on-year growth rate of nearly 9%.While China’s property insurance industry is developing at a rapid pace,the risks borne by property and casualty insurance companies are gradually increasing.As an important part of China’s financial system,it is of great significance to explore the factors affecting its financial stability.Property and casualty insurance companies have set up branches across the country,forming a state of multi-market contact.It has been shown that multi-market exposure affects the intensity of competition,profitability,innovation performance,and new market entry behaviour of firms.So does this competitive pattern of multi-market exposure affect the financial stability of China’s property and casualty insurance companies?This paper explores the impact of multi-market exposure on the financial stability of China’s property and casualty insurance companies,starting from the theory of mutual restraint.The paper first systematically reviews the relevant literature on multi-market exposure and financial stability,laying a solid theoretical foundation for the later empirical analysis.Secondly,the paper introduces the selection of industries and samples,the definition and measurement of each variable,and the construction of the empirical model in turn.Subsequently,this paper empirically analyses the impact of multi-market exposure on the financial stability of companies,using a sample of 48 property and casualty insurance companies in China from 2016 to2020.It is found that multi-market exposure has a U-shaped relationship with the financial stability of property and casualty insurance companies.To enhance the reliability,this paper performs robustness tests by excluding the 2020 sample,alternative measures of explanatory variables,add control variables,and endogeneity analysis through lagged one-period regression and instrumental variables methods.The results show that the U-shaped relationship between multi-market exposure and financial stability of P&C insurers still holds.In addition,this paper also performs a heterogeneity test by grouping the samples into regressions based on different company sizes,whether they are Chinese or not,and whether they are members of group companies.The results show that:(1)multi-market exposure negatively affects the financial stability of large-scale P&C insurers,and there is a U-shaped relationship between multi-market exposure and the financial stability of small-scale P&C insurers.(2)The relationship between multi-market exposure and financial stability is U-shaped for both Chinese and non-Chinese P&C insurers,but the U-shaped curve formed by Chinese P&C insurers is steeper than that of foreign(joint)P&C insurers.(3)The relationship between multi-market exposure and the financial stability of group companies is U-shaped,but multi-market exposure does not affect the financial stability of non-group companies.Finally,the paper also empirically analyses the moderating role of resource similarity in the above U-shaped relationship and the impact of multi-market exposure on the financial stability of P&C insurers’underwriting business.The results show that resource similarity will make the U-shaped relationship between multi-market exposure and financial stability smoother,and the relationship between multi-market exposure and P&C insurers’underwriting business stability remains U-shaped.Based on the findings,this paper makes recommendations for property and casualty insurers and regulators respectively.For P&C insurers,they should think twice before exploring new markets and setting up new branches,and formulate strategies in advance to deal with the impact of multi-market exposure on their financial stability and underwriting business stability.For regulators,they should moderately relax market access conditions and encourage foreign-owned property and casualty insurers to expand their markets in order to improve the level of multi-market exposure of property and casualty insurers.At the same time,regulators should strengthen the regulation of market conduct to avoid unfair competition among property and casualty insurers affecting the stability of the overall property insurance market.