The Structure of the Global Reinsurance Market: An Analysis of Efficiency, Scale, and Scope

64 Pages Posted: 26 Jan 2016

See all articles by Christian Biener

Christian Biener

Institute of Insurance Economics, University of St. Gallen; University of St. Gallen - School of Finance

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

Ruo Jia

University of St. Gallen - Institute of Insurance Economics; University of St. Gallen - School of Finance

Date Written: January 08, 2016

Abstract

We estimate economies of scale and scope as well as cost efficiency to explain the structure of the global reinsurance market, where large reinsurers dominate, but both diversified and specialized reinsurers play important roles. The costs and benefits of size and product diversification play significant roles in the reinsurance industry as risk diversification is at the heart of 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; small reinsurers exhibit superior efficiency only when they are specialized. The evidence is in line with the efficient structure hypothesis and suggests an optimal size range for reinsurance firms from which the current market structure results.

Keywords: Insurance, Data Envelopment Analysis, Cost Efficiency, Market Structure, Economies of Scale, Economies of Scope

JEL Classification: G22, L11, L25

Suggested Citation

Biener, Christian and Eling, Martin and Jia, Ruo, The Structure of the Global Reinsurance Market: An Analysis of Efficiency, Scale, and Scope (January 08, 2016). University of St.Gallen, School of Finance Research Paper No. 2016/3. Available at SSRN: https://ssrn.com/abstract=2722428 or http://dx.doi.org/10.2139/ssrn.2722428

Christian Biener (Contact Author)

Institute of Insurance Economics, University of St. Gallen ( email )

Girtannerstrasse 6
St. Gallen, St. Gallen 9010
Switzerland

HOME PAGE: http://sites.google.com/site/bienerresearchprofile/

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Martin Eling

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Ruo Jia

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, St. Gallen 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Kirchlistrasse 2
St.Gallen, CH-9010
Switzerland
+41 71 224 79 74 (Phone)
+41 71 224 79 90 (Fax)

HOME PAGE: http://www.ivw.unisg.ch/de/Lehrstuhl%20Eling/Team%20VM?person=b8b3d7ef-04dd-4693-8b9f-946e91a6bcf4&n

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