Reinsurance Governance, Insurer Risk-Taking, and Financial Sustainability in Emerging Asian Insurance Markets

Abstract A resilient and financially sustainable insurance sector is a cornerstone of sustainable economic development, climate risk adaptation, and socio-economic stability (aligned with UN SDGs 8, 11, and 13). However, whether traditional risk-transfer mechanisms genuinely support long-term insurer sustainability remains contested. This paper examines whether reinsurance restrains or amplifies insurer risk-taking in emerging Asian insurance markets. Using a panel of 45 insurers across East, South, and Southeast Asia from 2019 to 2023, we estimate a dynamic two-step difference GMM model to account for risk-taking persistence, firm heterogeneity, and potential endogeneity in reinsurance choices. The results show that a higher reinsurance ratio is significantly associated with greater insurer risk-taking. This pattern is consistent with a risk-shifting channel: rather than functioning purely as a stabilising buffer, reinsurance may relax underwriting and capital constraints, thereby incentivising insurers to expand risk exposure and potentially undermining their long-term financial sustainability. The evidence contributes to the literature on sustainable insurance and governance in emerging markets by demonstrating that risk-transfer instruments can generate unintended behavioural hazards when institutional monitoring and supervisory discipline are evolving. To safeguard sustainable financial institutions (SDG 16), regulators and insurers must align reinsurance programmes with enterprise risk management, evaluating not only the volume of ceded risk but also the incentive design and long-term solvency implications embedded in reinsurance arrangements.