The effect of ceded reinsurance on solvency of primary insurers

Yueyun Chen, Iskandar Hamwi and Tim Hudson

International Advances in Economic Research, 2001, vol. 7, issue 1, 65-82

Abstract: Primary insurance companies diversify their underwriting risk and thus improve their financial stability through buying reinsurance contracts. However, excessive use of reinsurance by an insurance company may signal the presence of financial difficulties. In fact, as research shows, a less solvent insurer tends to use more reinsurance because of its inability to raise needed capital in the financial market. Thus, regulators need to pay extra attention to insurers that overly use reinsurance since such behavior could signal an insurer's disproportionately high risk and its eventual probability of insolvency. Copyright International Atlantic Economic Society 2001

Date: 2001
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DOI: 10.1007/BF02296592

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