IDEAS home Printed from https://ideas.repec.org/a/bpj/apjrin/v5y2011i1n3.html
   My bibliography  Save this article

Shareholder Value: The Case of Japanese Captive Insurers

Author

Listed:
  • Maeda Yuji

    (Kwansei Gakuin University)

  • Suzawa Yoshihiko

    (Kyoto Sangyo University)

  • Scordis Nicos A

    (St. John’s University)

Abstract

We examine how a Japanese firm can derive the most value from a captive insurance company. We use actual data on losses, captive operating costs, interest rates and foreign exchange rates to simulate cash flows from a hypothetical pure captive. We examine three domiciles popular with Japanese firms: Bermuda, Hawaii and Guernsey. We find a high likelihood that the captive generates economic value for its Japanese parent firm especially when it operated over multiple years. We find that when the captive reinsures its entire book of business thus acting as a pass-through vehicle to the global reinsurance market, it normally delivers economic value but near to break-even. We also find that the captive can generate high levels of economic value but only by taking on higher levels of operating risk. We find that the value-maximizing strategy is for a Japanese corporation to establish its captive in Bermuda while the risk-minimizing strategy is to establish its captive in Guernsey. We also find that Bermuda would be a better choice than Hawaii for Japanese captives from the viewpoint of risk-return tradeoff.

Suggested Citation

  • Maeda Yuji & Suzawa Yoshihiko & Scordis Nicos A, 2011. "Shareholder Value: The Case of Japanese Captive Insurers," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 5(1), pages 1-24, March.
  • Handle: RePEc:bpj:apjrin:v:5:y:2011:i:1:n:3
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/apjri.2011.5.1/apjri.2011.5.1.1089/apjri.2011.5.1.1089.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ursina B. Meier & J. François Outreville, 2006. "Business cycles in insurance and reinsurance: the case of France, Germany and Switzerland," Journal of Risk Finance, Emerald Group Publishing, vol. 7(2), pages 160-176, March.
    2. Adams, Mike & Hillier, David, 2000. "The effect of captive insurer formation on stock returns: An empirical test from the UK," Journal of Banking & Finance, Elsevier, vol. 24(11), pages 1787-1807, November.
    Full references (including those not matched with items on IDEAS)

    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:bpj:apjrin:v:5:y:2011:i:1:n:3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: https://www.degruyter.com .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.