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Demutualization and Demand for Reinsurance

Author

Listed:
  • Jennifer L Wang

    (Risk Management and Insurance Department, National Cheng-chi University, #64, Sec. 2, Chi-Nan Road, Taipei 116, Taiwan.)

  • Vincent Y Chang

    (Finance Department, National Taiwan University, Taipei, Taiwan. E-mails: d91723001@ntu.edu.tw, tzeng@ntu.edu.tw)

  • Gene C Lai

    (Department of Finance, Insurance, and Real Estate, PO Box 644746, Pullman, WA 99164-4746, U.S.A.)

  • Larry Y Tzeng

    (Finance Department, National Taiwan University, Taipei, Taiwan. E-mails: d91723001@ntu.edu.tw, tzeng@ntu.edu.tw)

Abstract

This study investigates whether U.S. property-liability insurers change their demand for reinsurance after demutualization. Our empirical results show that the overall demand for reinsurance of converting insurers is not statistically different after the conversion. Furthermore, we find that converting insurers decrease the demand for reinsurance from non-affiliated reinsurers, but increase the demand for reinsurance from affiliated reinsurers after the conversion. One possible explanation is that converting insurers may treat reinsurance to affiliated reinsurers as risk retention rather than risk transfer so that they can reduce reinsurance cost. Another interesting finding is that converting insurers increase demand for reinsurance from non-affiliated reinsurers before conversion. The Geneva Papers (2008) 33, 566–584. doi:10.1057/gpp.2008.17

Suggested Citation

  • Jennifer L Wang & Vincent Y Chang & Gene C Lai & Larry Y Tzeng, 2008. "Demutualization and Demand for Reinsurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 33(3), pages 566-584, July.
    • Handle: RePEc:pal:gpprii:v:33:y:2008:i:3:p:566-584
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    Citations

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    Cited by:

    1. Tobias Götze & Marc Gürtler, 2022. "Risk transfer beyond reinsurance: the added value of CAT bonds," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(1), pages 125-171, January.
    2. Xie, Xiaoying & Wang, Yuling & Zhao, Guiqin & Lu, Weili, 2017. "Cash holdings between public and private insurers ‒ a partial adjustment approach," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 80-97.
    3. Hung, Jessica & Chang, Vincent Y. L., 2018. "The analysis of capital structure for propertyliability insurers: A quantile regression approach," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(4), pages 829-850, August.
    4. Dionne, Georges & Desjardins, Denise, 2017. "Reinsurance Demand and Liquidity Creation," Working Papers 17-3, HEC Montreal, Canada Research Chair in Risk Management.
    5. Vincent Y. Chang, 2019. "Does reinsurance purchasing enhance insurers’ competitiveness? Evidence from the U.S. property–liability insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(4), pages 595-623, October.
    6. Marijana Curak & Marija Utrobicic & Daniel Kovac, 2014. "Firm Specific Characteristics And Reinsurance – Evidence From Croatian Insurance Companies," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 23(1), pages 29-42, june.
    7. Alejandro Drexler & Richard Rosen, 2022. "Exposure to catastrophe risk and use of reinsurance: an empirical evaluation for the U.S," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(1), pages 103-124, January.

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