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Organisational structure, corporate governance and reinsurance decisions in the U.S. property-liability insurance industry

Author

Listed:
  • Chia-Ling Ho

    (Tamkang University)

  • Gene Lai

    (The University of North Carolina at Charlotte)

  • Sangyong Han

    (Korea Insurance Research Institute)

  • Licheng Jin

    (Southwestern University of Finance and Economics)

Abstract

This paper investigates the impact of organisational structure and corporate governance on reinsurance decisions in the U.S. property-liability insurance industry. Our evidence shows that mutual insurers, mutual-owned stock insurers and stock insurers whose ultimate parent is publicly traded are likely to purchase more reinsurance from non-affiliated reinsurers than stock insurers closely held by managers. We also find that corporate governance significantly influences reinsurance purchases; specifically, CEO/chairperson duality is associated with lower reinsurance purchases while the percentage of independent directors on the board is positively (negatively) related to reinsurance purchases from non-affiliated (affiliated) reinsurers. Higher audit quality is associated with lower (higher) reinsurance purchases from non-affiliated (affiliated) reinsurers. Moreover, many interaction terms between organisational structure and corporate governance have significant effects on reinsurance decisions. Finally, we provide evidence that the Sarbanes–Oxley Act (SOX) has a substantial effect on the relation between organisational structure (corporate governance) and reinsurance decisions. The overall effect of SOX on reinsurance purchase from non-affiliated reinsurers is negative, implying that better investor protection results in higher risk taking and less risk shifting to outside reinsurers.

Suggested Citation

  • 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.
    • Handle: RePEc:pal:gpprii:v:47:y:2022:i:4:d:10.1057_s41288-021-00238-2
    DOI: 10.1057/s41288-021-00238-2
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