Does Risk Appetite influence Demand for Reinsurance? A survey of the Evidence

Abstract

Reinsurance appears to be a very useful tool for primary insurers to secure themselves risks of decline performance. Nevertheless, over-reliance on it can be detrimental to financial performance and shareholder’s value. This notwithstanding, risk appetite seems to be a major determinant of the demand for reinsurance. This study aimed at assessing the influence of risk appetite on the demand for reinsurance in the non-life insurance sector of Nigeria. The research is descriptive in nature and it relied on secondary data of eleven non-life insurance companies from 2008-2017 as contained in NIA Digest, the publication of the Nigeria Insurers Association (NIA). Relationship between the variables is tested with regression and correlation analyses. Results show that risk appetite significantly influences the demand for reinsurance in the non-life insurance sector. Although, solvency did not demonstrate any significant relationship with demand for reinsurance but capital adequacy, appears to be positive and significant in its relationship with demand for reinsurance. The researchers, therefore, recommend that alternative strategies that can help non-life insurers secure capital required to meet short-term financial obligations should be considered. Also, non-life insurers should always keep an eye on their capital if they have no capacity to raise it beyond the benchmark imposed by the regulator.