This study investigates the relationship between reinsurance and firm performance by sourcing panel data from the 1999 to 2009 period of the property-liability insurance industry in Taiwan. The results of this investigation offer some insight that firm performance and reinsurance are interdependent. We find that insurers with higher return on assets (ROA) tend to purchase less reinsurance and insurers with higher reinsurance dependence tend to have a lower level of firm performance. Therefore, managers have to strike a balance between decreasing insolvency risk and reducing potential profitability. Other empirical results show that ROA, underwriting risks, liquidity ratio, business line concentration, return on investment (ROI) and financial holding dummy have a significant correlation with reinsurance. In addition, firm size, financial leverage, reinsurance, underwriting risks, liquidity ratio and ROI have a significant influence on firm performance. Our results have practical implications for the property-liability insurance industry and competent authorities in Taiwan.
The Geneva Risk and Insurance Review 37, pp.467–484