Internal Versus External Capital Markets in the Insurance Industry: The Role of Reinsurance
32 Pages Posted: 9 Feb 2005
Date Written: February 9, 2005
Abstract
This study compares internal and external sources of capital in the insurance industry by analyzing reinsurance activity between affiliated and unaffiliated insurers. Tests are performed using data from a large sample of property-liability insurers that are affiliated with at least one other property-liability insurer. Results indicate that while demands for internal and external reinsurance have some factors in common, there are cost-based differences in internal and external capital, as well as structural differences in the use of internal and external reinsurance. Results are consistent with previous theories related to internal versus external capital markets.
Keywords: Internal capital markets, Insurance, Reinsurance
JEL Classification: G22, G32
Suggested Citation: Suggested Citation
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