Internal Versus External Capital Markets in the Insurance Industry: The Role of Reinsurance

32 Pages Posted: 9 Feb 2005

See all articles by Lawrence Powell

Lawrence Powell

University of Alabama - Culverhouse College of Commerce & Business Administration

David W. Sommer

University of Georgia - Department of Insurance, Legal Studies, Real Estate; St. Mary's University

Date Written: February 9, 2005

Abstract

This study compares internal and external sources of capital in the insurance industry by analyzing reinsurance activity between affiliated and unaffiliated insurers. Tests are performed using data from a large sample of property-liability insurers that are affiliated with at least one other property-liability insurer. Results indicate that while demands for internal and external reinsurance have some factors in common, there are cost-based differences in internal and external capital, as well as structural differences in the use of internal and external reinsurance. Results are consistent with previous theories related to internal versus external capital markets.

Keywords: Internal capital markets, Insurance, Reinsurance

JEL Classification: G22, G32

Suggested Citation

Powell, Lawrence and Sommer, David W. and Sommer, David W., Internal Versus External Capital Markets in the Insurance Industry: The Role of Reinsurance (February 9, 2005). Available at SSRN: https://ssrn.com/abstract=664626 or http://dx.doi.org/10.2139/ssrn.664626

Lawrence Powell (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

David W. Sommer

St. Mary's University ( email )

1 Camino Santa Maria
San Antonio, TX 78023
United States
210-431-8055 (Phone)

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States
706-542-5160 (Phone)
706-542-4295 (Fax)

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