Demutualization and Demand for Reinsurance

Jennifer L Wang (), Vincent Y Chang, Gene C Lai () and Larry Y Tzeng
Additional contact information
Jennifer L Wang: Risk Management and Insurance Department, National Cheng-chi University, #64, Sec. 2, Chi-Nan Road, Taipei 116, Taiwan.
Vincent Y Chang: Finance Department, National Taiwan University, Taipei, Taiwan. E-mails: d91723001@ntu.edu.tw, tzeng@ntu.edu.tw
Gene C Lai: Department of Finance, Insurance, and Real Estate, PO Box 644746, Pullman, WA 99164-4746, U.S.A.
Larry Y Tzeng: Finance Department, National Taiwan University, Taipei, Taiwan. E-mails: d91723001@ntu.edu.tw, tzeng@ntu.edu.tw

The Geneva Papers on Risk and Insurance - Issues and Practice, 2008, vol. 33, issue 3, 566-584

Abstract: This study investigates whether U.S. property-liability insurers change their demand for reinsurance after demutualization. Our empirical results show that the overall demand for reinsurance of converting insurers is not statistically different after the conversion. Furthermore, we find that converting insurers decrease the demand for reinsurance from non-affiliated reinsurers, but increase the demand for reinsurance from affiliated reinsurers after the conversion. One possible explanation is that converting insurers may treat reinsurance to affiliated reinsurers as risk retention rather than risk transfer so that they can reduce reinsurance cost. Another interesting finding is that converting insurers increase demand for reinsurance from non-affiliated reinsurers before conversion. The Geneva Papers (2008) 33, 566–584. doi:10.1057/gpp.2008.17

Date: 2008
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