Reinsurance Counterparty Relationships and Firm Performance In the U.S. Property-Liability Insurance Industry

This research investigates reinsurance counterparty relationships in U.S. property-liability insurance. Counterparty relationships are measured in terms of reinsurance premiums ceded and reinsurance recoverable on paid and unpaid losses. Multiple regression analysis is used to analyze insurer characteristics that determine reinsurance utilization, exposure, and counterparty concentration. We also analyze the relationship between firm performance and reinsurance utilization. Performance is measured using ROA and ROE as well as frontier efficiency scores (cost, revenue, and profit) estimated using data envelopment analysis (DEA). Firm performance is positively related to reinsurance utilization, especially with foreign reinsurers, but performance is adversely related to concentration in reinsurance counterparties.