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. © 2003 Elsevier Inc. All rights reserved.
CITATION STYLE
Harrington, S. E., & Niehaus, G. (2003). Capital, corporate income taxes, and catastrophe insurance. Journal of Financial Intermediation, 12(4), 365–389. https://doi.org/10.1016/j.jfi.2003.07.001
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