Reinsurance and capital structure are important factors in insurer's operations. In recent years, catastrophe happened frequently in Asian countries. However, prior studies usually focused on reinsurance and catastrophe issues in the developed countries, not in other developing countries. Thus, this study aims to investigate the relationship among reinsurance, capital structure and catastrophe in the context of the young but fast-growing Asian insurance market. Using data that consists of property-liability insurers in China and Taiwan from 2008 to 2012, we adopt the simultaneous equation model to examine the relationship among reinsurance, capital structure and catastrophe. Based on the two-stage least square regression estimations, our empirical results support that the property-liability insurers with higher leverage tend to purchase more reinsurance, and with higher utilization of reinsurance tend to have higher leverage. However, we have no evidence to support that reinsurance and capital structure of insurers will change after occurrence of catastrophe.
