Internationalization of the Reinsurance Industry: An Analysis of the Net Exposure of Reinsurers

Abstract

In today’s global marketplace, the internationalization decision has become increasingly relevant for a greater number of firms. We use the framework of the eclectic paradigm to empirically investigate the decision of U.S. reinsurers to internationalize based on their net exposure in both developed and developing nations. The reinsurance industry poses an interesting setting to study internationalization as we can measure the net exposure in a county given the requirements to report both ceded and assumed reinsurance. This allows for a better measure of the overall exposure reinsurers have in a given country. Of particular interest in exploring internationalization are the diversification benefits as well as the potential impact of free-trade initiatives and the economic development of the host country. We find that the characteristics impacting net reinsurance exposure vary based on the characteristics of the countries.