This paper uses conventional measures of CEO overconfidence: option holdings-based and net stock purchase-based measures to examine the impact of CEOs who hold firm-specific risk on insurer’s risk-taking and firm performance in U.S. publicly traded property-liability insurance companies. We find that two CEO overconfidence measures are negatively associated with insurer’s risk-taking and positively related to firm performance. We also provide evidence that CEOs who maintain high exposure to firm-specific risk exploit their private information to time stock-option exercises in an effort to increase the cash payout from these exercises. Our overall results indicate that CEOs who have private information on their firms’ future earnings maximize their personal profits by postponing option exercises or buying additional stocks, and that they tend to take a lower risk to protect their personal wealth in property-liability insurance firms. Therefore, our findings suggest that it may not be CEO overconfidence, but rather the private information and the intention to control the company’s risk that drive our results.

Keywords: CEO Overconfidence; Risk Taking; Firm Performance; Reinsurance Demand