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Do P/L Insurers Cede Too Much?- An Analysis Based on the RBC Regulation-
Journal of Insurance and Finance
2015, 26(1),
pp.51-71
Publisher : Korea Insurance Research Institute
Research Area : Business Management
Publisher : Korea Insurance Research Institute
Research Area : Business Management
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The regulator of Korean insurance industry concerned about the reinsurance deficits, since reinsurance deficits have continued even after the economic growth of Korean became modest. Although many insurance literature have studied theoretically the optimal reinsurance structure, none of them have empirically measured whether a primary insurer or market cede more than necessary. The paper tried to fill the gap. The objective of this paper is to examine whether the Korean P/L insurers as a whole retain or cede more or less than the optimal level a given risk-based capital framework. We first estimate the required capital(RC) for the insurers in 2012 based on past loss experience from 2000 to 2011. Then, we calculate the available capital(AC) of the insurers based on the current RBC regulation. We finally compare the RC(required capital) to AC(available capital) and find that the Available-to-Required Capital Ratio of the insurers is 247% with confidence level 95%. Although our evidence suggests that the Korean P/L insurers could retention more than the current level, more researches are warranted to confirm the argument considering conservative risk appetite and risk-taking strategies of Korean insurers.
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