Ownership Structure and Reinsurance Decisions: Evidence from the Property Casualty Insurance Industry in China

This study examines the impact of ownership structure on reinsurance decisions in the Chinese property casualty insurance industry. The evidence shows that foreign insurers have higher reinsurance demand than domestic insurers. Specifically, foreign insurers are more likely to purchase volunteer reinsurance. More important, foreign insurers are associated with a higher percentage of facultative reinsurance ratios than domestic insurers. Implementing the compulsory reinsurance ratio in the Chinese insurance market before 2006 is inefficient. Finally, regulation of compulsory reinsurance ratio affected the reinsurance demand in 2006. For example, insurers with a 10 percent compulsory reinsurance ratio in 2004 had significantly different reinsurance demand from that of insurers without compulsory reinsurance after 2006. The overall results of this study indicate that ownership structure and other characteristics of firms’ significantly affect the demand for reinsurance.