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REINSURANCE AND FIRM PERFORMANCE IN THE U.S. PROPERTY-LIABILITY INSURANCE INDUSTRY
FENG, ZHIJIAN
FENG, ZHIJIAN
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Thesis/Dissertation
Date
2013
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Business Administration/Risk Management and Insurance
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http://dx.doi.org/10.34944/dspace/1187
Abstract
This dissertation investigates the relationships between reinsurance activities and primary insurers' financial performance in U.S. property-liability insurance market from several perspectives. The first essay investigates the relationship between ceding insurer performance and the affiliation, domicile, and authorization of its counterparties. Specifically, we provide empirical evidence that ceding insurer financial performance is positively related to the use of affiliated reinsurance, the use of foreign reinsurance, and the use of affiliated reinsurance that is ceded to the low-tax, lightly-regulated domiciled counterparties; and negatively related to the use of unauthorized reinsurance. These results are consistent with the cost of information asymmetry theory. The second essay investigates reinsurance counterparty relationships in U.S. property-liability insurance. Firm-specific characteristics determinants of counterparty relationships are examined. We also analyze the relationship between firm performance and reinsurance counterparty relationships. We find that concentration in reinsurance counterparties, especially in unaffiliated counterparties, is adversely related to insurer performance due to higher information asymmetry. On the other hand, relationship with foreign counterparties is positive related to performance, suggesting the foreign reinsurers may have a favorable position in terms of tax treatment, specialized service, among other factors.
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