Journal of Applied Finance & Banking

The Influence of Reinsurance on Insurance Companies\' Profitability: Evidence from the Austrian, Croatian and Romanian Insurance Industry

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• Abstract

  This paper reveals the influence of insurance premiums ceded to reinsurance on insurance companies’ profitability in the 2007-2011 period of the insurance industry in Austria, Croatia and Romania revealing the relationship between the cedants and reinsurers. The analysis conducted using panel analysis shows different results depending on the insurance market being analyzed. Specifically, results of the analysis referring to insurance market in Croatia reveal that insurance companies with higher share of premiums ceded to reinsurance have lower level of profitability measured by ROA indicator. Contrary results were obtained for insurance market in Austria where insurance companies with higher share of premiums ceded to reinsurance reported higher levels of profitability. Moreover, the influence of reinsurance on insurance companies' profitability proved to be insignificant in Romania.