An Empirical study on the reinsurance decisions of Korean life insurance companies

Abstract

Drawing attention from academic field of finance and insurance industry, I test for determinants of reinsurance decision making in relation to company-specific features in Korean life insurance companies. Using a panel data design covering 372 firm-year observations for 8 consecutive years, from 2011 to 2018, I observe that high underwriting risk, low solvency ratio, small size, and highly concentrated portfolio tested to be determinants of reinsurance decision. In addition, I take the institutional background of the Korean life insurance industry into consideration and select two ownership structure variables to find their relationship with purchasing reinsurance behavior. Life insurance companies grouped in financial conglomerates buy more reinsurance while foreignowned life insurers cede less risks. Despite meaningful findings, some of the selected company features were not statistically significant implicating further detailed research is required. This study hopes to become a cornerstone for future research in the field of life reinsurance in Korea and may have implications for policymakers and the management of life insurance companies.