Pushkinskaya st. 43. office 10
Rostov-on-Don, Russia
344082
e-mail: info@hjournal.ru 
tel. +7(863) 269-88-14

cubsEN (2)

The Impact of The Reinsurance Institute on The Financial Results of Insurance Companies

The Impact of The Reinsurance Institute on The Financial Results of Insurance Companies

Journal of Institutional Studies, , Vol. 13 (no. 3),

Risk management is one of the biggest challenges for financial market participants, in particular for the insurance companies. To solve this problem, the regulator and the insurance market have created a number of institutions, one of which is the institution of reinsurance. Institutions contribute to the solution of problems arising due to the limited rationality and opportunism of participants of contract processes. By use of these institutions organizations have an opportunity to reduce the “ex post” and “ex ante” transaction costs associated with contracts. At the same time, institutions only determine the rules and goals. The organization’s tactics and the way of fulfilling the requirements are completely controlled by its leadership of all levels, which also defines the role of institutions in solving other important business tasks, such as ensuring its efficiency and sustainability. The sustainability and efficiency of the insurance business significantly depends on proper risk management. This study analyses how the use of reinsurance institution as a part of risk-management affects the financial results of insurance companies. The insured events specified in contracts may not occur during their validity period, and one can suppose that in the short-term perspective reinsurance generates mostly outgoing cash flows, which affect the efficiency, solvency and liquidity of the organization. So the aim of the study is to analyse the impact of reinsurance intensity estimated by the share of premium transferred to the reinsurer on the specific financial characteristics of Russian insurance business. As a result, it was revealed that in the short term the impact is significantly negative: the use of reinsurance leads to decrease in financial performance of domestic insurance organizations. This result, of course, does not diminish the significance of reinsurance for risk-management, but it should be taken into account within financial planning and actuarial activities. For completeness, the relationship of various financial indicators with efficiency, solvency and liquidity of insurance companies was also analysed. In particular, it was shown that a change in the influence strength of a number of financial management tools affect above mentioned characteristics. We also noted the need to consider the nonlinear nature of relationships between financial indicators used in study in processes of forecasting and management.


Keywords: insurance; reinsurance; risk management; institutional economics; contract theory; fractional polynomials; panel regression

References:
  • Архипов А.П. (2016). Страхование: Учебник. 3-е изд., стереотип. М.: КНОРУС, 336с. [Arkhipov A.P. (2016). Insurance: Textbook. 3rd ed. M.: KNORUS. (in Russian).]
  • Асабина С.Н., Ершов Н.В. (2017). Предпосылки создания национального (государственного) перестраховщика: международная практика // Страховое дело (8): 11–14. [Asabina, S.N., Ershov, N.V. (2017). Prerequisites of national reinsurer establishment: international experience. Strakhovoye delo (8): 11–14. (in Russian).]
  • Макарова Г.Ю., Макаров М.С. (2019). Российский рынок страхования и перестрахования: основные характеристики и проблемы развития // Социальная политика и социология 18(2): 7–16. [Makarova G.Yu., Makarov M.S. (2019). Russian Insurance and Reinsurance Market: Main Characteristics and Problems of Development. Social policy and sociology 18(2): 7–16. (in Russian).]
  • Найт Ф.Х. (2003). Риск, неопределенность и прибыль. М.: Дело, 360 с. [Knight, F.H. (2003). Risk, Uncertainty and Profit. M.: Delo, 360 p. (in Russian).]
  • Норт Д. (1997). Институты, институциональные изменения и функционирование экономики. М.: Фонд экономической книги “Начала”, 180 с. [North, D. (1997). Institutions, institutional change and economic performance. M.: “Nachala”, 180 p. (in Russian).]
  • Правикова А.А. (2015). Котировка договора перестрахования на базе эксцедента убытка: «структурный» метод определения цены // Математическое моделирование в экономике, страховании и управлении рисками: сборник материалов IV Междунар.молодежной науч.-практ. конф.: в 2 т. Саратов: Изд-во Саратовского университета. [Pravikova, A.A. (2015). Quotation of the reinsurance contract based on the excess of loss: “structural” method of determining the price. Mathematical modeling in economics, insurance and risk management: collection of materials of the IV International Youth Scientific and Practical. Conf.: in 2 volumes. Saratov: Saratov University Publishing House. (in Russian).]
  • Пфайффер К. (2000). Введенuе в перестрахованuе. Анкил, 154 с. [Pfeiffer, K. (2000). Introduction to reinsurance. Ankil, 154 p. (in Russian).]
  • Уильямсон О.И. (1996). Экономические институты капитализма. Фирмы, рынки, «отношенческая» контрактация. СПб: Лениздат. [Williamson, O.I. (1996). The Economic Institutions of Capitalism. Firms, Markets, Relational Contracting. S-P: Lenizdat. (in Russian).]
  • Шевлякова Е.С., Васюкова Л.К. (2016). Перспективы сотрудничества России и Китая по перестрахованию рисков // Проблемы экономики и менеджмента 1(53). [Shevlyakova, E.S., Vasyukova, L.K. (2016). Perspectives of cooperation between Russia and China in reinsurance. Problemy ekonomiki i menedzhmenta 1(53). (in Russian).]
  • Acharya, V.V., Biggs, J., Le, H., Richardson, M., Ryan, S. (2011). Systemic risk and the regulation of insurance companies. Regulating Wall Street: the Dodd-Frank Act and the new architecture of global finance. NY, 241–302.
  • Adebowale, A.O., Adebayo, O.M. (2018). Reinsurance Utilisation and Performance of Non-Life Business in The Nigerian Insurance Industry: A Mixed Methods Approach. The Journal of Risk Management and Insurance 22(2): 18–30.
  • Adebowale, A.O. (2019). Empirical Analysis of Reinsurance Dependence on the Profitability of General Insurance Business in Nigeria. Academic Journal of Economic Studies 5(4): 36–43.
  • Caporale, G.M., Cerrato, M., Zhang, X. (2017). Analysing the Determinants of Insolvency Risk for General Insurance Firms in the UK. Journal of Banking and Finance, DOI: 10.1016/j.jbankÞn.2017.07.011
  • Cummins, J.D., Feng, Z., Weiss, M.A. (2012). Reinsurance counterparty relationships and firm performance in the US property-liability insurance industry. Available at SSRN 1997444.
  • Eling, M., Pankoke, D.A. (2016). Systemic risk in the insurance sector: a review and directions for future research. Risk Management and Insurance Review 19(2): 249–284.
  • Hart, O., Moore, J. (1988). Incomplete contracts and renegotiation. Econometrica 4(56): 755–785.
  • Iqbal, H.T., Mobeen, U.R., Shahzad, S.J.H. (2014). Analysis of Change in Profitability due to Reinsurance Utilization and Leverage Levels: Evidence from Non-Life Insurance Sector of Pakistan. JISR-MSSE 12(1).
  • James, R., Garven, J., Lamm, T. (2003). The Demand for Reinsurance: Theory and Empirical Tests. Insurance and Risk Management 7(3): 217–237.
  • Mayers, D., Smith, Jr C.W. (1990) On the corporate demand for insurance: evidence from the reinsurance market. Journal of Business 63(1): 19–40.
  • Powell, L.S., Sommer, D.W. (2007). Internal versus external capital markets in the insurance industry: The role of reinsurance. Journal of Financial Services Research 31(2-3): 173–188.
  • Royston, P., Sauerbrei, W. (2008). Multivariable model-building: a pragmatic approach to regression analysis based on fractional polynomials for continuous variables. JohnWiley & Sons Ltd, 303.
  • Royston, P., Altman, D.G. (1994). Regression Using Fractional Polynomials of Continuous Covariates: Parsimonious Parametric Modelling. Journal of the Royal Statistical Society. Series C (Applied Statistics) 43(3): 429–467.
  • Sheikh, S.A.M., Shah, S.S.A. (2018). Corporate reinsurance utilisation and capital structure: evidence from Pakistan insurance industry. The Geneva Papers on Risk and Insurance-Issues and Practice 43(2): 300–334.
  • Shortridge, R.T., Avila, S.M. (2004). The impact of institutional ownership on the reinsurance decision. Risk Management and Insurance Review 2(7): 93–106. OECD (2020). Global insurance market trends 2019, 31 p.
Publisher: Ltd. "Humanitarian perspectives"
Founder: Ltd. "Humanitarian perspectives"
Online-ISSN: 2412-6039
ISSN: 2076-6297