Determinants of the Reinsurance Decisions of Korean Life Insurance Companies

Abstract

This paper examines how company-specific features of Korean life insurance companies are associated with companies’ use of reinsurance. Using panel data covering 372 firm-year observations for the eighteen consecutive years from 2001 to 2018, we perform Hausman-Taylor instrumental variable estimation. We observe that higher underwriting risk, lower solvency ratio, higher financial leverage, smaller firm size, and more diversified portfolios are associated with greater use of reinsurance. In addition, It seems that life insurance companies that are a part of financial conglomerates buy more reinsurance, while foreign-owned life insurers retain more risk. Being the first empirical reinsurance study using Korean life insurance company data, this research implies that various company-specific characteristics should be considered in reinsurance decision-making in the changing life insurance market environment in Korea.