Journal of Financial Intermediation Vol. 12 No. 4 2003
Capital, corporate income taxes, and catastrophe insurance
Abstract
We provide estimates of the equity capital needed and the resulting tax costs incurred when supplying catastrophe insurance/reinsurance using a partial equilibrium model that incorporates a specific loss distribution for US catastrophe losses. After consideration of insurer investment in tax-exempt securities, tax loss carry-back/forward provisions, and personal taxes, our results imply that the tax costs of equity finance alone have a substantial effect on the cost of supplying catastrophe reinsurance. These results help explain a variety of industry developments that reduce tax costs. Also, when coupled with non-tax costs of capital, these results help explain the limited scope of catastrophe insurance/reinsurance.
- DOI
- 10.1016/j.jfi.2003.07.001
- Volume
- 12
- Issue
- 4
- Pages
- 365-389
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref