51. Organisational structure, corporate governance and reinsurance decisions in the U.S. property-liability insurance industry.
- Author
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Ho, Chia-Ling, Lai, Gene, Han, Sangyong, and Jin, Licheng
- Subjects
REINSURANCE ,INSURANCE companies ,CORPORATE governance ,INVESTOR protection ,HOUSE buying ,BOARDS of directors ,FINANCIAL risk ,INSURANCE premiums - Abstract
This paper investigates the impact of organisational structure and corporate governance on reinsurance decisions in the U.S. property-liability insurance industry. Our evidence shows that mutual insurers, mutual-owned stock insurers and stock insurers whose ultimate parent is publicly traded are likely to purchase more reinsurance from non-affiliated reinsurers than stock insurers closely held by managers. We also find that corporate governance significantly influences reinsurance purchases; specifically, CEO/chairperson duality is associated with lower reinsurance purchases while the percentage of independent directors on the board is positively (negatively) related to reinsurance purchases from non-affiliated (affiliated) reinsurers. Higher audit quality is associated with lower (higher) reinsurance purchases from non-affiliated (affiliated) reinsurers. Moreover, many interaction terms between organisational structure and corporate governance have significant effects on reinsurance decisions. Finally, we provide evidence that the Sarbanes–Oxley Act (SOX) has a substantial effect on the relation between organisational structure (corporate governance) and reinsurance decisions. The overall effect of SOX on reinsurance purchase from non-affiliated reinsurers is negative, implying that better investor protection results in higher risk taking and less risk shifting to outside reinsurers. [ABSTRACT FROM AUTHOR]
- Published
- 2022
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