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(Re)insurance and Diversification Inside P&C Insurers

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  • Silvia Bressan
  • Sabrina Du

Abstract

We show that the combination of reinsurance and diversification strategies can improve the financial conditions of group-affiliated insurers. Analyzing P&C insurance companies in the United States, we find that firms purchasing huge reinsurance from affiliates while having a largely diversified business, do exhibit low expense ratios, are more profitable and financially solid. Moreover, we show that increasing external reinsurance (i.e. reinsurance from non- affiliates) together with wide geographical diversification decreases expense ratios too. These findings are in line with the hypothesis that “real service efficiencies†from reinsurance Mayers and Smith Jr (1990) would be more substantial if insurers are able to concentrate less of their risk within only a few lines of business or geographical areas. These insights are important to develop managerial strategies to face economic phases characterized by increasing reinsurance costs like we are currently experiencing.  JEL classification numbers: G22, G30, G32.

Suggested Citation

  • Silvia Bressan & Sabrina Du, 2024. "(Re)insurance and Diversification Inside P&C Insurers," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(5), pages 1-5.
    • Handle: RePEc:spt:apfiba:v:14:y:2024:i:5:f:14_5_5
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Insurance; Reinsurance; Diversification; Performance.;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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