The recipient of the 2019 Witt Award is Greg Niehaus for “Managing Capital by Internal Capital Market Transactions: The Case of Life Insurers,” March 2018, Volume 85, Issue 1, pages 69-106.
The movement of capital within insurance groups is important for understanding insolvency risk management, as well as regulatory policies regarding capital standards and group supervision. Panel data estimates indicate that, on average, a dollar decrease in performance (net income plus unrealized capital gains) when performance is negative is associated with a $0.26 increase in capital contributions to life insurers from other entities in the group, and that a dollar increase in performance when performance is positive is associated with a $0.56 increase in the amount of internal shareholder dividends paid by life insurers to other entities in the group. Moreover, the sensitivity of internal dividends to performance is higher during the financial crisis than the noncrisis period. Also, insurers with low (high) risk‐based capital ratios receive more (less) internal capital contributions than other insurers, holding other factors constant.