Vol.:(0123456789) The Geneva Papers on Risk and Insurance - Issues and Practice (2022) 47:279–320 https://doi.org/10.1057/s41288-021-00231-9 An analysis of post‑demutualisation in the property–liability insurance industry Licheng Jin 1  · Gene Lai 2  · Chia‑Ling Ho 3 Received: 18 September 2020 / Accepted: 24 April 2021 / Published online: 18 May 2021 © The Geneva Association 2021 Abstract Using a quasi-natural experiment, we examine how demutualisation afects demutu- alised insurers’ capital, organisational fexibility and alignment of managerial incen- tives post-demutualisation. First, our results show demutualised insurers have faster surplus growth than matching insurers post-demutualisation. However, the surplus growth difers between demutualised insurers with and without surplus notes. Spe- cifcally, the evidence shows that demutualised insurers with surplus notes experi- ence long-term surplus growth, while demutualised insurers without surplus notes experience short-term surplus increases. Second, we fnd that increased organisa- tional fexibility facilitates merger and acquisition activities for demutualised insur- ers and helps them to pursue growth and diversifcation. We fnd that 51% of demu- tualised stock insurers become targets in the conversion year. Finally, we fnd that demutualised insurers have lower underwriting expenses and underwrite more in commercial lines post-demutualisation. Overall, our evidence shows that demutu- alisation has a positive impact on surplus growth, organisational fexibility and the alignment between managerial incentives and owners’ interests. Keywords Demutualisation · Access to capital · Organisational fexibility · Managerial incentive alignment * Gene Lai glai@uncc.edu Licheng Jin jinlc@swufe.edu.cn Chia-Ling Ho clho@mail.tku.edu.tw 1 School of Insurance, Southwestern University of Finance and Economics, 555 Liutai Ave., Chengdu 611130, Sichuan, China 2 Department of Finance, Belk College of Business, University of North Carolina at Charlotte, 9201 University City Blvd., Charlotte, NC 28223, USA 3 Department of Risk Management and Insurance, Tamkang University, 151 Ying-Chuan Road, Tamsui, New Taipei City 251, Taiwan