Capital, corporate income taxes, and catastrophe insurance |
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Authors: | Scott E Harrington Greg Niehaus |
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Institution: | Moore School of Business, University of South Carolina, Columbia, SC 29208, USA |
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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. |
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Keywords: | Corporate income tax Insurance Financing policy Reinsurance Catastrophe Capital Catastrophe bonds Offshore |
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