The Structure of the Global Reinsurance Market: An Analysis of Efficiency, Scale, and Scope
Journal
Journal of Banking and Finance
Series
School of Finance Working Paper Series
ISSN
0378-4266
ISSN-Digital
1872-6372
Type
journal article
Date Issued
2017-04
Author(s)
Abstract
We estimate economies of scale and scope as well as cost and revenue efficiency to explain the structure of the global reinsurance market, where large reinsurers dominate but both diversified and specialized reinsurers are competitive. The costs and benefits of size and product diversification are particularly relevant to the reinsurance industry, as risk diversification is central to the industry's business model. We find that reinsurers with total assets less than USD 2.9 billion exhibit scale economies, while those with total assets greater than USD 15.5 billion do not. Large reinsurers are characterized by high cost efficiency, while small reinsurers exhibit superior efficiency only when specialized. Large reinsurers also exhibit revenue scope economies when operating both life and nonlife reinsurance. Moreover, the evidence is in line with the efficient structure hypothesis: cost-efficient reinsurers can charge lower prices without sacrificing profitability.
Language
English
Keywords
Insurance
Cost efficiency
Market structure
Economies of scale
Economies of scope
Data envelopment analysis
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Elsevier North-Holland
Publisher place
Amsterdam
Volume
77
Start page
213
End page
229
Subject(s)
Division(s)
Eprints ID
239765