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Effect of risk management through reinsurance in estimating the target capital structure

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  • Li, Xiaoyi
  • Shiu, Yung-Ming

Abstract

Prior studies have examined determinants of the target capital structure; however, limited attention has been paid to risk management mechanisms. Using non-life insurance firms, this study estimates the target capital structure with reinsurance as a proxy for risk management and Hurricane Sandy as an exogenous shock. Results show that reinsurance has a positive effect on the target capital structure, with the total variation increasing from 7.29% to 14.90%. Further, the reinsurance effect is more significant for larger insurers with more diversified lines of business and geographic reach. This study expands knowledge on how insurers manage their capital structure through risk transfer mechanisms, offering a more comprehensive view of the factors influencing the optimal leverage level.

Suggested Citation

  • Li, Xiaoyi & Shiu, Yung-Ming, 2026. "Effect of risk management through reinsurance in estimating the target capital structure," International Review of Economics & Finance, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:reveco:v:109:y:2026:i:c:s1059056026005137
    DOI: 10.1016/j.iref.2026.105400
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