The Sensitivity of reinsurance demand to counterparty risk : evidence from the U.S. property-liability insurance industry

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      <subfield code="a">The Sensitivity of reinsurance demand to counterparty risk</subfield>
      <subfield code="b">: evidence from the U.S. property-liability insurance industry</subfield>
      <subfield code="c">Sojung Carol Park  Xiaoying Xie  Pinghai Rui</subfield>
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      <subfield code="a">This article investigates market discipline in the reinsurance market by examining the sensitivity of reinsurance demand to reinsurer counterparty risk for a sample of U.S. property-liability insurance companies. Using the financial strength rating of reinsurers as a proxy for reinsurance counterparty risk, we find evidence of market discipline that reinsurance demand is sensitive to counterparty risk. Specifically, reinsurance demand reacts negatively to reinsurer rating downgrades, with the reduction being the largest when a weak reinsurer gets weaker, followed by a reinsurer being downgraded below a benchmark rating. The sensitivity is higher for authorized reinsurance than for unauthorized reinsurance. Reinsurance demand sensitivity to counterparty risk is found to be lower for ceding insurers with higher leverage. Ceding insurers with high reinsurer sustainability are less sensitive to noncritical rating downgrades of reinsurers. Additionally, reinsurance demand is found to be less sensitive to reinsurer upgrading than to reinsurer downgrading.</subfield>
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      <subfield code="t">The Journal of risk and insurance</subfield>
      <subfield code="d">Nueva York : The American Risk and Insurance Association, 1964-</subfield>
      <subfield code="x">0022-4367</subfield>
      <subfield code="g">02/12/2019 Volumen 86 Número 4 - diciembre 2019 , p. 915-946</subfield>
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