Demutualization and demand for reinsurance

This study investigates whether U.S. property-liability insurers change their demand for reinsurance after demutualization. Our empirical results show that the overall demand for reinsurance of converting insurers is not statistically different after the conversion. Furthermore, we find that converting insurers decrease the demand for reinsurance from non-affiliated reinsurers, but increase the demand for reinsurance from affiliated reinsurers after the conversion. One possible explanation is that converting insurers may treat reinsurance to affiliated reinsurers as risk retention rather than risk transfer so that they can reduce reinsurance cost. Another interesting finding is that converting insurers increase demand for reinsurance from non-affiliated reinsurers before conversion. ? 2008 The International Association for the Study of Insurance Economics.