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The structure of the global reinsurance market: An analysis of efficiency, scale, and scope

Christian Biener, Martin Eling and Ruo Jia

Journal of Banking & Finance, 2017, vol. 77, issue C, 213-229

Abstract: We estimate economies of scale and scope as well as cost and revenue efficiency to explain the structure of the global reinsurance market, where large reinsurers dominate but both diversified and specialized reinsurers are competitive. The costs and benefits of size and product diversification are particularly relevant to the reinsurance industry, as risk diversification is central to the industry's business model. We find that reinsurers with total assets less than USD 2.9 billion exhibit scale economies, while those with total assets greater than USD 15.5 billion do not. Large reinsurers are characterized by high cost efficiency, while small reinsurers exhibit superior efficiency only when specialized. Large reinsurers also exhibit revenue scope economies when operating both life and nonlife reinsurance. Moreover, the evidence is in line with the efficient structure hypothesis: cost-efficient reinsurers can charge lower prices without sacrificing profitability.

Keywords: Insurance; Cost efficiency; Market structure; Economies of scale; Economies of scope; Data envelopment analysis (search for similar items in EconPapers)
JEL-codes: G22 L11 L25 (search for similar items in EconPapers)
Date: 2017
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Working Paper: The Structure of the Global Reinsurance Market: An Analysis of Efficiency, Scale, and Scope (2016) Downloads
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DOI: 10.1016/j.jbankfin.2017.01.017

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