A Test of the Eclectic Paradigm: Evidence From the U.S. Reinsurance Market

Abstract

This study provides a test of the eclectic paradigm with data from U.S. reinsurers. The U.S. reinsurance industry provides a unique setting to test the eclectic paradigm due to the extensive data available on U.S. reinsurers and the well-developed literature related to reinsurance. The ability to test the hypotheses related to the eclectic paradigm in a service industry and incorporate industry-specific factors adds to the eclectic paradigm literature which has traditionally focused primarily on manufacturing firms. In addition, the application of the eclectic paradigm to the reinsurance industry provides an empirical framework that combines several prior streams of literature which examine the reinsurer's decision to internationalize. The current study includes firm-specific factors, country-specific factors of the international markets, and factors related to the U.S. reinsurance industry. This article finds support for traditional factors impacting globalization such as host market size, loss experience, and competitiveness as well as reinsurer's ability to expand based on available capacity. Understanding the importance of firm-, country-, and industry-specific factors is key for managers, as analyzing these issues in isolation may lead to an incomplete picture of the factors impacting the internationalization decision, hindering managers' ability to make decisions that are in the best interest of the firm. With the continued interdependence of the world reinsurance marketplace, as well as the recent expansion of the European Union, internationalization issues are of critical importance not only to U.S. insurers, reinsurers, and regulators, but also to their global counterparts. Copyright The Journal of Risk and Insurance, 2007.

Foreign Affiliates of the Largest Insurance Groups: Location‐Specific Advantages

“…Beyond the simple decision of whether foreign entry is allowed or not, foreign banks are more likely to establish subsidiaries or affiliates in locations with fewer restrictions on their activities. Government effectiveness is included in the study by Cole, Lee, and McCullough (2005) to determine the potential relation to the regulatory environment.…”

“…Ma and Pope found that countries with higher GDP tend to attract more international insurers participation 20 . A more recent article by Cole, Lee, and McCullough (2005) provides a comprehensive approach to the decision process of U.S. reinsurers to assume from foreign insurers based on the OLI paradigm. The results of the study provide support to firm‐specific factors and location‐specific advantages.…”

A game theoretic analysis of firms' entry mode decisions

“…The model has also been evaluated for service industries, such as the reinsurance industry (Cole et al, 2007). Even for service industry firms, a complete picture of the decision to internationalise could be obtained by integrating firm-, country-and industry-specific factors (Cole et al, 2007). Thus, conceptually and empirically, the eclectic model has remained a good framework for evaluating internationalisation.…”

“…In terms of industrial applicability, a significant number of studies using the eclectic model have focused on goods manufacturing firms. The model has also been evaluated for service industries, such as the reinsurance industry (Cole et al, 2007). Even for service industry firms, a complete picture of the decision to internationalise could be obtained by integrating firm-, country-and industry-specific factors (Cole et al, 2007).…”

Foreign Participation in Life Insurance Markets: Evidence from OECD Countries

“…30 . 31 Ward and Zurbruegg (2002), Beck and Webb (2003), Li et al (2006), Cole et al (2007) and . 32 Thanks to two anonymous referees for pointing out these factors.…”