Characteristics of Life Insurers Entering the Mutual Fund Industry

Abstract

This paper explores the life insurance company-mutual fund combination movement. Three organizational forms of entry are examined and hypotheses are developed to determine if insurers entering the mutual fund field have characteristics that are systematically associated with form of entry. Questionnaire data and selected quantitative characteristics related to entrants' size, underwriting, and investment management are utilized to test the organizational form hypotheses. In 1952 Nationwide Corporation acquired an investment management company and became the first insurer to enter the mutual fund industry. However, the major movement of life insurance companies into the mutual fund field did not start until 1966.1 By mid-1969 over 100 life insurance companies were offering mutual funds. objective of this paper is to determine if life companies entering the mutual fund industry have qualitative and quantitative characteristics that are systematically related to their form of entry. first section briefly explores the entry movement. In the second section, questionnaire data and selected quantitaJames A. Gentry, D.B.A., and Charles M. Linke, D.B.A., are Associate Professors of Finance in the University of Illinois. This paper was submitted in August, 1969. authors wish to thank Mugur Ramaswamy, David Schroeder, Joe Seroka and David Turney for research assistance, and the Research Board at the University of Illinois for financial assistance. computer time was paid for in part by a grant to the University of Illinois Department of Computer Sciences, USNSF Grant Number GT 7634. Statistical calculations were performed by SOUPAC. 1 For a discussion of this entry movement, see James A. Gentry and Charles M. Linke, The Life Insurance Company-Mutual Fund Combination Movement: An Overview. Best's Review, Vol. 71, No. 3 (July, 1970), pp. 12-23. tive characteristics are used to examine life companies involved in the mutual fund movement. implications and limitations of the study are discussed in section three.