The Determinants of the Demand for Motor Reinsurance in Sri Lankan General Insurance Market

Abstract

Introduction: This study investigates the determinants of the demand for motor reinsurance in the Sri Lankan General Insurance market, focusing on financial indicators such as return on total assets, growth of gross written premiums, underwriting risk, solvency margin, financial leverage, and reinsurance ratio. The purpose of this study is to identify what are the factors affecting the demand for motor reinsurance in the Sri Lankan General Insurance market.

Methodology: The target population of this study was the Sri Lankan General Insurance market. The study applies the quantitative research approach with deductive research logic, and all the secondary data are taken from the annual reports of the General Insurance companies and the IRCSL from 2015 to 2022. Data analyzed by using STATA software, which included statistical tests such as descriptive statistics, diagnostic tests including correlation testing, heteroscedasticity testing, serial autocorrelation testing, cross-sectional dependency, and regression analysis.

Findings: The findings of the study highlighted that underwriting risk and solvency margin are the key determinants of the demand for motor reinsurance in the Sri Lankan General Insurance market. Higher underwriting risk drives insurers to cede more risks to reinsurers, supporting the risk-bearing hypothesis. Conversely, companies with stronger solvency margins tend to retain more risks.

Conclusions: The study concludes that managing underwriting risk and maintaining robust solvency margins are critical for optimizing reinsurance strategies and structure for the Sri Lankan General Insurance companies.