IDEAS home Printed from https://ideas.repec.org/a/bla/rmgtin/v21y2018i2p211-242.html
   My bibliography  Save this article

On the Corporate Demand for Insurance: Evidence From the Global Reinsurance Market

Author

Listed:
  • Muhammed Altuntas
  • James Garven
  • Jannes Rauch

Abstract

In this article, we view the demand for reinsurance as a “special case” of the corporate demand for insurance. We analyze the extent to which reinsurance purchases by the global property–liability insurance industry vary across countries and assess the relative importance of country‐level factors compared with firm‐level factors. Using a data set consisting of 21,814 firm‐year observations from 33 (developed and developing) countries during the period 2000–2012, we find that after controlling for firm‐level factors, country‐level factors have economically as well as statistically significant effects on the demand for reinsurance.

Suggested Citation

  • Muhammed Altuntas & James Garven & Jannes Rauch, 2018. "On the Corporate Demand for Insurance: Evidence From the Global Reinsurance Market," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 21(2), pages 211-242, September.
    • Handle: RePEc:bla:rmgtin:v:21:y:2018:i:2:p:211-242
    DOI: 10.1111/rmir.12107
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/rmir.12107
    Download Restriction: no
    File URL: https://libkey.io/10.1111/rmir.12107?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Adams, Mike & Hardwick, Philip & Zou, Hong, 2008. "Reinsurance and corporate taxation in the United Kingdom life insurance industry," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 101-115, January.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. Cassandra R. Cole & Kathleen A. McCullough, 2006. "A Reexamination of the Corporate Demand for Reinsurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(1), pages 169-192, March.
    4. Kenneth A. Froot, 1999. "The Financing of Catastrophe Risk," NBER Books, National Bureau of Economic Research, Inc, number froo99-1, March.
    5. Georges Dionne (ed.), 2013. "Handbook of Insurance," Springer Books, Springer, edition 2, number 978-1-4614-0155-1, June.
    6. Lamm-Tennant, Joan & Starks, Laura T, 1993. "Stock versus Mutual Ownership Structures: The Risk Implications," The Journal of Business, University of Chicago Press, vol. 66(1), pages 29-46, January.
    7. Wakker, Peter P & Thaler, Richard H & Tversky, Amos, 1997. "Probabilistic Insurance," Journal of Risk and Uncertainty, Springer, vol. 15(1), pages 7-28, October.
    8. Aunon-Nerin, Daniel & Ehling, Paul, 2008. "Why firms purchase property insurance," Journal of Financial Economics, Elsevier, vol. 90(3), pages 298-312, December.
    9. Lawrence Powell & David Sommer, 2007. "Internal Versus External Capital Markets in the Insurance Industry: The Role of Reinsurance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 31(2), pages 173-188, June.
    10. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    11. L. Paige Fields & Manu Gupta & Puneet Prakash, 2012. "Risk Taking and Performance of Public Insurers: An International Comparison," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(4), pages 931-962, December.
    12. Altuntas, Muhammed & Berry-Stölzle, Thomas R. & Wende, Sabine, 2015. "Does one size fit all? Determinants of insurer capital structure around the globe," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 251-271.
    13. Yung‐Ming Shiu, 2011. "Reinsurance and Capital Structure: Evidence From the United Kingdom Non‐Life Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(2), pages 475-494, June.
    14. Söhnke M. Bartram & Gregory Brown & René M. Stulz, 2012. "Why Are U.S. Stocks More Volatile?," Journal of Finance, American Finance Association, vol. 67(4), pages 1329-1370, August.
    15. Kenneth A. Froot, 2007. "Risk Management, Capital Budgeting, and Capital Structure Policy for Insurers and Reinsurers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(2), pages 273-299, June.
    16. Plümper, Thomas & Troeger, Vera E., 2007. "Efficient Estimation of Time-Invariant and Rarely Changing Variables in Finite Sample Panel Analyses with Unit Fixed Effects," Political Analysis, Cambridge University Press, vol. 15(2), pages 124-139, April.
    17. Michael L. Lemmon & Michael R. Roberts & Jaime F. Zender, 2008. "Back to the Beginning: Persistence and the Cross‐Section of Corporate Capital Structure," Journal of Finance, American Finance Association, vol. 63(4), pages 1575-1608, August.
    18. J. David Cummins & Richard Phillips & Stephen Smith, 1997. "Corporate Hedging in the Insurance Industry," North American Actuarial Journal, Taylor & Francis Journals, vol. 1(1), pages 13-40.
    19. Adiel, Ron, 1996. "Reinsurance and the management of regulatory ratios and taxes in the property--casualty insurance industry," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 207-240, October.
    20. Yanbo Jin & Philippe Jorion, 2006. "Firm Value and Hedging: Evidence from U.S. Oil and Gas Producers," Journal of Finance, American Finance Association, vol. 61(2), pages 893-919, April.
    21. Kevin Aretz & Söhnke M. Bartram & Gunter Dufey, 2007. "Why hedge? Rationales for corporate hedging and value implications," Journal of Risk Finance, Emerald Group Publishing, vol. 8(5), pages 434-449, November.
    22. Selim Mankaï & Aymen Belgacem, 2016. "Interactions Between Risk Taking, Capital, and Reinsurance for Property–Liability Insurance Firms," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(4), pages 1007-1043, December.
    23. Garven, James R. & Louberge, Henri, 1996. "Reinsurance, Taxes, and Efficiency: A Contingent Claims Model of Insurance Market Equilibrium," Journal of Financial Intermediation, Elsevier, vol. 5(1), pages 74-93, January.
    24. Froot, Kenneth A. & O'Connell, Paul G.J., 2008. "On the pricing of intermediated risks: Theory and application to catastrophe reinsurance," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 69-85, January.
    25. Scott Harrington & Greg Niehaus, 2002. "Capital Structure Decisions in the Insurance Industry: Stocks versus Mutuals," Journal of Financial Services Research, Springer;Western Finance Association, vol. 21(1), pages 145-163, February.
    26. Selim Mankaï & Aymen Belgacem, 2013. "Interactions Between Risk-Taking, Capital, and Reinsurance for Property-Liability Insurance Firms," EconomiX Working Papers 2013-23, University of Paris Nanterre, EconomiX.
    27. Cassandra R. Cole & William L. Ferguson & Ryan B. Lee & Kathleen A. McCullough, 2012. "Internationalization in the Reinsurance Industry: An Analysis of the Net Financial Position of U.S. Reinsurers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(4), pages 897-930, December.
    28. Froot, Kenneth A. (ed.), 1999. "The Financing of Catastrophe Risk," National Bureau of Economic Research Books, University of Chicago Press, number 9780226266237, December.
    29. Charles Smithson & Betty J. Simkins, 2005. "Does Risk Management Add Value? A Survey of the Evidence," Journal of Applied Corporate Finance, Morgan Stanley, vol. 17(3), pages 8-17, June.
    30. Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-347, May.
    31. Cassandra R. Cole & Ryan B. Lee & Kathleen A. McCullough, 2007. "A Test of the Eclectic Paradigm: Evidence From the U.S. Reinsurance Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(2), pages 493-522, June.
    32. Cummins, J. David & Doherty, Neil & Lo, Anita, 2002. "Can insurers pay for the "big one"? Measuring the capacity of the insurance market to respond to catastrophic losses," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 557-583, March.
    33. Mayers, David & Smith, Clifford W, Jr, 1982. "On the Corporate Demand for Insurance," The Journal of Business, University of Chicago Press, vol. 55(2), pages 281-296, April.
    34. Jiang Cheng & Mary A. Weiss, 2012. "Capital Structure in the Property-Liability Insurance Industry: Tests of the Tradeoff and Pecking Order Theories," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 35(1), pages 1-43.
    35. James R Garven & James I Hilliard & Martin F Grace, 2014. "Adverse Selection in Reinsurance Markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 39(2), pages 222-253, September.
    36. Patricia Born & W. Kip Viscusi & Tom Baker, 2009. "The Effects of Tort Reform on Medical Malpractice Insurers' Ultimate Losses," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 197-219, March.
    37. Breusch, Trevor & Ward, Michael B. & Nguyen, Hoa Thi Minh & Kompas, Tom, 2011. "FEVD: Just IV or Just Mistaken?," Political Analysis, Cambridge University Press, vol. 19(2), pages 165-169, April.
    38. Zou, Hong & Adams, Mike B., 2006. "The corporate purchase of property insurance: Chinese evidence," Journal of Financial Intermediation, Elsevier, vol. 15(2), pages 165-196, April.
    39. Muhammed Altuntas & Jannes Rauch, 2017. "Concentration and financial stability in the property-liability insurance sector: global evidence," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 18(3), pages 284-302, May.
    40. Mayers, David & Smith, Clifford W, Jr, 1990. "On the Corporate Demand for Insurance: Evidence from the Reinsurance Market," The Journal of Business, University of Chicago Press, vol. 63(1), pages 19-40, January.
    41. Laureen Regan & Yeon Hur, 2007. "On the Corporate Demand for Insurance: The Case of Korean Nonfinancial Firms," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(4), pages 829-850, December.
    42. J. David Cummins & Mary A. Weiss & Hongmin Zi, 1999. "Organizational Form and Efficiency: The Coexistence of Stock and Mutual Property-Liability Insurers," Management Science, INFORMS, vol. 45(9), pages 1254-1269, September.
    43. de Haan, Leo & Kakes, Jan, 2010. "Are non-risk based capital requirements for insurance companies binding?," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1618-1627, July.
    44. Tufano, Peter, 1996. "Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 51(4), pages 1097-1137, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    2. Altuntas, Muhammed & Berry-Stölzle, Thomas R. & Wende, Sabine, 2015. "Does one size fit all? Determinants of insurer capital structure around the globe," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 251-271.
    3. Jiyeon Yun & James M. Carson & David L. Eckles, 2023. "Executive compensation and corporate risk management," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(2), pages 521-557, June.
    4. Selim Mankaï & Aymen Belgacem, 2013. "Interactions Between Risk-Taking, Capital, and Reinsurance for Property-Liability Insurance Firms," EconomiX Working Papers 2013-23, University of Paris Nanterre, EconomiX.
    5. Sana Sheikh & Ali Murad Syed & Syed Sikander Ali Shah, 2018. "Corporate Reinsurance Utilisation and Capital Structure: Evidence from Pakistan Insurance Industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(2), pages 300-334, April.
    6. Chia-Ling Ho & Gene Lai & Sangyong Han & Licheng Jin, 2022. "Organisational structure, corporate governance and reinsurance decisions in the U.S. property-liability insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(4), pages 737-784, October.
    7. Shiu, Yung-Ming, 2020. "How does reinsurance and derivatives usage affect financial performance? Evidence from the UK non-life insurance industry," Economic Modelling, Elsevier, vol. 88(C), pages 376-385.
    8. Ching-Yuan Hsiao & Yung-Ming Shiu, 2019. "The effects of business mix on internal and external reinsurance usage," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(4), pages 624-652, October.
    9. 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.
    10. Selim Mankaï & Aymen Belgacem, 2016. "Interactions Between Risk Taking, Capital, and Reinsurance for Property–Liability Insurance Firms," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(4), pages 1007-1043, December.
    11. Ignacio Moreno & Purificación Parrado‐Martínez & Antonio Trujillo‐Ponce, 2020. "Economic crisis and determinants of solvency in the insurance sector: new evidence from Spain," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2965-2994, September.
    12. Hong Zou, 2010. "Hedging Affecting Firm Value via Financing and Investment: Evidence from Property Insurance Use," Financial Management, Financial Management Association International, vol. 39(3), pages 965-996, September.
    13. Hsiao, Ching-Yuan & Shiu, Yung-Ming, 2023. "Risk-sharing function in internal capital markets: Evidence from intragroup reinsurance activities," International Review of Financial Analysis, Elsevier, vol. 87(C).
    14. Selim Mankai & Aymen Belgacem, 2013. "Interactions Between Risk-Taking, Capital, and Reinsurance for Property-Liability Insurance Firms," Working Papers hal-04141190, HAL.
    15. Fier, Stephen G. & McCullough, Kathleen A. & Carson, James M., 2013. "Internal capital markets and the partial adjustment of leverage," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 1029-1039.
    16. Lawrence Powell & David Sommer, 2007. "Internal Versus External Capital Markets in the Insurance Industry: The Role of Reinsurance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 31(2), pages 173-188, June.
    17. Dionne, Georges & Desjardins, Denise, 2017. "Reinsurance Demand and Liquidity Creation," Working Papers 17-3, HEC Montreal, Canada Research Chair in Risk Management.
    18. Upreti, Vineet & Adams, Mike, 2015. "The strategic role of reinsurance in the United Kingdom’s (UK) non-life insurance market," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 206-219.
    19. J. François Outreville, 2013. "The Relationship Between Insurance and Economic Development: 85 Empirical Papers for a Review of the Literature," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 16(1), pages 71-122, March.
    20. Lin, Chen & Lin, Ping & Zou, Hong, 2012. "Does property rights protection affect corporate risk management strategy? Intra- and cross-country evidence," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 311-330.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:rmgtin:v:21:y:2018:i:2:p:211-242. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1098-1616 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.