2009, Factors Influencing the Demand for Reinsurance in the Medical Malpractice Insurance Market: A Focus on Organizational Form, working paper

Reinsurance plays a critical role in the proper functioning of a stable insurance market. Given variation in organizational goals and informational advantages associated with differences in organizational form, we anticipate that physician-directed medical malpractice insurers will use reinsurance differently than will their non-physician directed counterparts. This study tests for influences of a variety of organizational and market characteristics on reinsurance demand using the NAIC data base for the years 1995-2001. We find that insurers that are physician directed tend to purchase less reinsurance than do their non-physician-directed counterparts, particularly the stock insurers. We also find that group affiliation, smaller size, higher leverage, under-reserving, greater geographic dispersion, and less specialization in medical malpractice are associated with greater purchase of reinsurance