• Non-Life Insurers’ Reinsurance Use and Capital Structure: Evidence from Taiwan

Abstract

Using data on non-life insurers from 1997 through 2010, we examine the two-way relation between reinsurance use and capital structure. Consistent with prior research, we find that insurers with higher reinsurance dependence tend to have a higher level of debt. This result is consistent with the renting capital hypothesis. However, the reverse is not true. We find that insurers with higher leverage tend to use less reinsurance, which we partly attribute to the implementation of risk-based capital system, regulatory policies and industry practice that exists in Taiwan. We also conduct an analysis to examine the robustness of our results.

Keywords: Reinsurance, Capital Structure, Risk-based Capital, Non-life Insurers