The aim of this paper is to analyse the impact of both firm-specific and external factors on the risk taking of European insurance companies. The extent of risk taking is quantified through variations in stock prices and these are explained by firm-specific and external factors that proxy the environment in which the insurers are active. Using a two-way panel regression analysis with fixed and random effects, our empirical study covers hand-collected data on 35 German and UK insurance companies for the period 1997 to 2010. We find that differences in company size, capital structure, liquidity, and economic development affect variations in stock prices. The analysis also highlights differences between the market-based UK corporate governance system and the control-based regime implemented in Germany, with the UK exhibiting a higher level of risk, compensation, and board independence. We also document increases in the volatility of insurance stock returns during the financial crisis..
