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This study adds to the literature modeling the corporate demand for reinsurance by considering the effects of the international reinsurance industry on the demand for insurance by U.S. firms. The results relating to the firm-specific characteristics support the results of prior studies in this area. In addition, the study finds that the state of the U.S. reinsurance market significantly impacts the overall demand for reinsurance. Based on the variables in this study, there is no support found for the hypothesis that possible differences in the foreign and U.S. markets impact the decision to utilize foreign reinsurance. However, the study does find that there are insurer-specific differences that affect the utilization of foreign versus U.S. reinsurance. Larger insurers, as well as those with less income generated from tax-exempt assets, are more likely to use foreign reinsurance. Also, mutual insurers and affiliate insurers are more likely to use foreign reinsurance.
The size of the insurer is highly significant in both the model examining the use of foreign reinsurance and the model examining the extent of use of foreign reinsurance. This suggests that perhaps these insurers need to enter the foreign market to secure enough reinsurance. Collectively, the results of the study indicate that further exami- nation of the use of foreign reinsurance by U.S. insurers is needed. With the possible implementation of new international regulatory standards and a wave of financial downgrades of reinsurers around the world, these issues are becoming increasingly important to U.S. insurers.
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