Managing financial constraints: Undercapitalization and underwriting capacity in spanish fire insurance

MANAGING FINANCIAL CONSTRAINTS: UNDERCAPITALIZATION AND UNDERWRITING CAPACITY IN SPANISH FIRE INSURANCE Pablo Gu ié ez González Resea ch Assis an a he Depa men o Economics and Economic His o y Uni e si y o Se ille Spain La s-F ed ik Ande sson Associa e P o esso a he Depa men o Geog aphy and Economic His o y Umeå Uni e si y Sweden ABSTRACT Reinsu ance is a i al inancial de ice o enhancing unde w i ing capaci y, ceding isks and mi iga ing inancial dis ess. By supplying inancial esou ces and se ices, einsu ance can acili a e g ow h and expansion in he insu ance business. Focusing on he insu ance sec o in he eme ging Spanish economy and using a no el da ase on i e insu ance companies, his pape examines he ole o i e insu ance in he capi al o ma ion, he impo ance o einsu ance as a ehicle o expanding he coun y’s domes ic unde w i ing capaci y, and how he capi al impo impac ed on he balance o paymen , om he in oduc ion o he i s comp ehensi e legisla ion ega ding 2 insu ance in 1908 o he ou b eak o he Ci il Wa in 1936. Conside ing he si ua ion o unde capi aliza ion, he singula i ies o he insu ance ma ke , and he changes in egula o y schemes, we ind ha o eign einsu ance became a key inancial ehicle o inc easing he unde w i ing capaci y in Spain. We also show he s uggle o an eme ging ma ke o ind ways o keep balance o cu en accoun s and aise capi al when he inancial in as uc u e is unde de eloped. The di usion o einsu ance ne wo ks om he co e o indus ial Wes e n coun ies owa ds eme ging economies was one o he mechanisms o inancial mode niza ion on a global scale. Technologies and de ices de eloped in pionee ing coun ies a e expec ed o acili a e he pe o mance o less de eloped economies. 1 La ecome s bene i om he di usion o knowledge om ad anced economies, gene a ing highe e u n and g ow h in he eal economy. F om a inancial pe spec i e, he ad ancemen and expansion o inancial se ices and ins umen s in pionee ing coun ies can acili a e he di usion o capi al and knowledge o he de elopmen o banking and insu ance in de eloping coun ies. 2 Indeed, as shown by Pea son, con inen al Eu ope bene i ed om he insu ing expe ience and new ins umen s ha di used om he Uni ed Kingdom in he nine een h and ea ly wen ie h cen u ies. 3 Ne e heless, he lowe le els o capi al accumula ion and he agmen a ion o he ma ke o ced con inen al insu e s o de elop new de ices beyond hose complex pools o isk di e si ica ion, such as Lloyd’s o London, used by B i ish 1 Ge schenk on, Economic backwa dness and K ugman, ‘A model o inno a ion’. 2 Rousseau and Sylla, ‘Financial Sys em, G ow h and Globaliza ion’. 3 Pea son, Insu ing he indus ial e olu ion. 3 o ices. Ge man and Swiss insu e s bene i ed om new managemen ocuses, and deal wi h capi al cons ain s by employing inno a i e inancial de ices. 4 F om he mid-nine een h cen u y onwa ds, einsu ance was one o he g owing global mechanisms o inancial isk di e si ica ion. I became a key inancial ehicle o enhancing unde w i ing capaci y, ceding isks, and mi iga ing inancial dis ess in Wes e n economies. 5 In i s capaci y as a supplie o inancial esou ces and isk se ices ac oss coun ies, einsu ance ea ly on became a global business. 6 Du ing he phase o indus ializa ion and la e , he di usion o global einsu ance ne wo ks me a g owing need o di ec insu e s o educe hei exposu e o unexpec ed losses ollowing he g ow h o capi al s uc u es. 7 Mo eo e , by using einsu ance as an al e na i e o equi y capi al o accumula ing esou ces, di ec insu e s could unde w i e mo e isks wi hou jeopa dizing hei inancial sol ency. Thus, einsu ance se es as an impe ec subs i u e o equi y capi al. 8 Indeed, einsu ance allows small companies and mu ual socie ies o o e come hei sca ci y (o lack) o equi y capi al and o maximize hei ma ke sha e in e ms o business pe o mance. 9 As a consequence, einsu ance se es as an al e na i e o adi ional sou ces o unding. Supplying an addi ional inancial ehicle, he impo ance o einsu ance is expec ed o g ow in unde capi alized economies and/o du ing pe iods o economic g ow h when he demand o unding is ising. 10 In his p ocess, pe iphe al la ecome s such as Spain seem o ha e been highly in luenced by he di usion o such 4 James e al., The alue o isk, 9–10. 5 Pea son, ‘De elopmen o einsu ance’, and Pea son, ‘Bi h pains’. 6 Bo scheid and Haue e (eds.), Wo ld Insu ance, 45, and James e al., The alue o isk, 68. 7 Idem, Golding, A his o y o einsu ance, and Ge a hewohl, Reinsu ance. 8 Maye s and Smi h, ‘E idence om einsu ance ma ke ’, Be ge , Cummins and Tennyson, ‘Reinsu ance’, Ga en and Lamn-Tennan , ‘The demand o einsu ance’ and Powell and Somne , ‘In e nal e sus ex e nal capi al’. 9 P ie o, El easegu o: unción económica, Ge a hewohl, Reinsu ance and Pea son, ‘De elopmen o einsu ance’. 10 Pea son, Insu ing he indus ial e olu ion, Pea son, ‘Uni ed Kingdom’ and Kade e al., ‘De e minan s o einsu ance’. 4 echniques. In ba ely 40 yea s o de elopmen , he Spanish insu ance ma ke managed o ide ou inancial igidi ies and capi al sho ages in such a way ha , as he Fi s Wo ld Wa d ew nea , i was able o co e no only domes ic isks bu also o eign ones. 11 Focusing on he insu ance sec o in he eme ging Spanish economy, his pape examines he de e minan s o o eign einsu ance demand in he Spanish i e insu ance ma ke om he in oduc ion o he i s comp ehensi e legisla ion in 1908 o he ou b eak o he Ci il Wa in 1936. As in o he lines such as ma ine and li e insu ance, he s ong p esence o o eign companies and he supply o einsu ance om ab oad became key elemen s in p o iding insu ance co e age o he eme ging Spanish economy. 12 Howe e , unlike he ma ine insu ance business, i e insu ance showed a s able o eign p esence o e he whole pe iod and was less a ec ed by he shock o he Fi s Wo ld Wa . 13 In addi ion, he weigh o i e line in he insu ance indus y was inc easingly highe han ma ine. Figu e 1 shows he size o adi ional lines and he o al weigh o insu ance o e GDP, om 1912 o 1934: along wi h he economic g ow h o he 1920s, i e insu ance almos mul iplied by i e he size o ma ine ma ke a he end o he decade, being one o he main componen s in he con ibu ion o he insu ance indus y o he Spanish economy. In ela ion o li e insu ance, i e line was cha ac e ized by a mo e compe i i e and dynamic business en i onmen . 14 Mo eo e , he isk s uc u e o li e business and he wide use o o he ac ua ial de ices as mo ali y ables made einsu ance less decisi e o he managemen o he po olio. In his scena io, i e business in Spain du ing his pe iod expe ienced a as and sus ained 11 To ella e al., His o ia del segu o. 12 Con empo a y au ho s no ed his impo ance. Fo example, Cenamo , ‘El segu o sob e la ida’, xi, discussed he dependence o Spanish li e insu e s on o eign einsu ance as he only way o a oid o ‘pe ish wi hou emedy’. 13 Pons, ‘A his o y o insu ance’, 158–9. 14 Pons, ‘Mul ina ional en e p ises’. 5 g ow h a ec ed by la ge and concen a ed isk pools, which esul ed in highe dependence on he supply o isk di e si ica ion se ices as einsu ance. Figu e 1. P emiums ea ned in he main adi ional lines o he Spanish insu ance ma ke , (million Pese as, 1928-yea p ice le el) (le axis) and weigh o o al insu ance p emiums o e GDP, in % ( igh axis), be ween 1912 and 1934. No e: Da a on p emiums ea ned by ma ine insu ance companies a e no a ailable un il 1920. Sou ces: Pons, ‘Es a egias de c ecimien o’, Appendix 1 and Ca e as and Ta unell (eds.), Es adís icas His ó icas de España, 1339. The ocus on he i e insu ance business may be mo i a ed by o he easons as well. As shown in p e ious s udies, i e insu ance played a i al ole o eme ging indus ial economies by supplying bo h inancial p o ec ion and indemni y o losses due o unexpec ed isks, and he eby mi iga ing he unan icipa ed isk o majo inancial losses associa ed wi h in es men in physical capi al. Also, by insu ing one o he majo colla e al secu i ies, i e insu ance has been ecognised o i s impo ance in suppo ing an impo an pa o he inancial in as uc u e o capi al o ma ion. 15 15 See e.g. Pea son, Insu ing he indus ial e olu ion. 0,5 0,75 1 1,25 1,5 0 20 40 60 80 100 120 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 Li e Fi e Ma ine % To al P emiums / GDP 6 Howe e , in mee ing he demand om he eme ging indus ial economy, he Spanish i e insu ance sec o had o o e come a numbe o sho comings. One o he majo sho comings was he sho age o capi al in he domes ic economy. Toge he wi h he singula i ies o he Spanish insu ance ma ke , and he changes in egula o y schemes, his pape a gues ha einsu ance became a i al inancial ehicle o inc easing he unde w i ing capaci y in he unde capi alized Spanish insu ance sec o . This pape will add ess he issue, placing he i e insu ance indus y in o a wide con ex , and examining he de e minan s o einsu ance in line wi h he ollowing h ee ques ions; (i) How did he expansion o i e insu ance ela e o capi al o ma ion in Spain? (ii) How did he use o einsu ance a ec he s ong dependency on o eign capi al impo s and, in he end, he pe o mance o he Spanish balance o paymen s? (iii) Was he e a sys emic p e e ence o pu chasing einsu ance beyond i m-speci ic condi ions a ec ing Spanish companies? To iden i y such condi ions, we employ a no el and ex ensi e da ase including bo h domes ic Spanish i e insu ance companies and o eign o ices, o which we ha e ca ego ized i m-speci ic and sys emic p e e ences such as na ionali y. The emainde o he pape is o ganized as ollows. Sec ion 2 aces he his o ical de elopmen o he Spanish inancial and insu ance sec o om he la e nine een h cen u y up o he la e 1930s. Sec ion 3 ou lines he a chi al eco ds, he da a used o examining he ole o einsu ance in he Spanish insu ance sec o , and desc ip i e s a is ics on i e insu ance in Spain. Sec ion 4 desc ibes he empi ical analysis and he key indings ega ding he mechanisms unde lying he ole o einsu ance o Spanish insu e s. Sec ion 5 concludes he pape . 7 I The de elopmen o he Spanish insu ance sec o was slow in he nine een h cen u y. The demand o insu ance was weak due o he unbalanced na ional g ow h ajec o y, while poli ical unce ain y and a es ic i e legal amewo k p esen ed obs acles o join s ock companies o supply insu ance e ec i ely. 16 These di icul ies esul ed in he p oli e a ion o mu ual socie ies along adi ional lines as i e and li e du ing he cen al decades o he cen u y. 17 Mos o he companies o his ype we e small local socie ies ea u ed by he backwa dness in manage ial p ac ices and a deep ac ua ial lag. 18 Ne e heless, in he u bulen con ex o he 1860s, a new legisla ion on s ock companies was passed in 1869. 19 Toge he wi h he poli ical s abili y o he es o ed mona chy in 1875, hese changes imp o ed he business en i onmen in he la e pa o he cen u y. 20 Fa om being a d as ic s uc u al change, in es men s in p oduc i e asse s esul ed in a s eady end o g ow h in he capi al s ock. 21 The inc easing s ock o buildings, machine y and anspo a ion equipmen igge ed he demand o insu ance co e age. Indeed, he g owing needs o isk managemen de ices made insu ance a key elemen , supplying capi al se ices o he manu ac u ing sec o . 22 Figu e 2 shows he agg ega ed de elopmen o he capi al s ock (1878–1936) and he g ow h in he i e insu ance business (1908–1936). 23 Dwellings, o he buildings and in as uc u es made up he majo componen s o he s ock o capi al du ing he 16 F ax and Ma illa, ‘Los segu os en España’, 191–5, and To ella e al., His o ia del segu o, 88–90. 17 Pons, ‘In e na ional In luence’, 190. 18 Pons, ‘A his o y o insu ance’, 146–8, 158. Fo mo e de ails abou echnical backwa dness in he li e b anch, see Pons and Gu ie ez, ‘Ac ua ial p ac ices’, 11–6. 19 F ax and Ma illa, ‘Los segu os en España’, 187–8, and Pons, ‘Mul ina ional en e p ises’, 90, ha e unde lined his change as he s a ing miles one o he insu ance business in Spain 20 P ados, El p og eso económico, 230, poin s ou he sus ained g ow h be o e 1929, e en hough he e we e signi ican di e ences be ween he low a es un il 1920 and he g ea expansion o he 1920s. 21 P ados and Rosés, ‘Capi al accumula ion’, 162, de e mined an annual a e o g ow h o 2.3 pe cen om 1883 o 1920 and 3.5 pe cen om 1920 o 1929. 22 A simila p ocess o he Swedish case is desc ibed by Lilljeg en and Ande sson, ‘Va ia ion in o ganiza ion’, 79. Acco ding o F ax and Ma illa, ‘Los segu os en España’, 193-4, numbe o companies in all lines inc eased om 32 in 1876 o 124 in 1908. 23 The e a e no agg ega ed da a p e ious o 1908. 8 whole pe iod. Mo eo e , he expansion since he Fi s Wo ld Wa and he p ice ends made bo h dwellings and buildings main ain and inc ease hei weigh beyond machine y and anspo a ion equipmen alues. Figu e 2. Fixed-capi al s ock es ima es by componen s (le axis), and i e insu ance p emiums ( igh axis), (million Pese as, 1928-yea p ice le el) be ween 1876 and 1936. Sou ces: P ados and Rosés, ‘Capi al accumula ion’, Appendix Table A5, and Pons, ‘Es a egias de c ecimien o’, Appendix 1. The in ense capi al o ma ion wen hand-in-hand wi h he expansion o he i e insu ance indus y in Spain. F om 1912 o 1932, he size o he ma ke ipled in eal e ms. 24 As shown in Figu e 2, i e insu ance kep pace wi h he g ow h o he capi al s ock wi h he excep ion o he yea s du ing he Fi s Wo ld Wa . This pe iod o sus ained g ow h coincided wi h a s eady end in in e na ionaliza ion. In he wake o he global expansion o inancial business, se e al 24 Pons, ‘Di e si icación y ca elización’, 570. 0 10 20 30 40 50 60 70 80 90 100 0 500 1000 1500 2000 2500 3000 3500 1876 1879 1882 1885 1888 1891 1894 1897 1900 1903 1906 1909 1912 1915 1918 1921 1924 1927 1930 1933 1936 Dwellings O he cons uc ion and in as uc u es T anspo equipmen Machine y equipmen Insu ance p emiums (Fi e) 9 o eign and domes ic insu ance companies expanded in o he eme ging Spanish economy. Fo eign o ices coming om ma u e ma ke s such as he Uni ed Kingdom and F ance supplied a subs an ial pa o insu ance co e age in Spain. 25 Be o e he Fi s Wo ld Wa , in 1912, he i e insu ance ma ke was sha ed be ween 16 domes ic companies and 29 o eign o ices. The o eign business sha e was 37%. 26 The s ong o eign p esence esul ed in he p o use adop ion o inno a i e de ices and p ac ices om ab oad: collusi e p ac ices in he way o he B i ish Fi e O ices Commi ee we e employed a ound he Comi é Español de Asegu ado es de Incendios, which hus helped bo h domes ic and o eign companies o se s anda d p ac ices in he ma ke . 27 In pa allel, F ench and B i ish socie ies in oduced he use o einsu ance in o he Spanish insu ance indus y: in a i s s ep as a way o en e he ma ke ; a e ha , as a mean o di e si ying hei po olios. 28 Toge he wi h his openness and he inc easing size o he ma ke , he economy concealed in e nal imbalances and sys emic sho comings ha hinde ed he de elopmen o he domes ic insu ance indus y and pa ed he way o he en ance o o eign o ices. Ce ainly, despi e he a es o g ow h expe ienced since 1875, he Spanish inancial sys em emained unde de eloped a he u n o he cen u y. 29 Based on he i e basic cha ac e is ics o a success ul inancial sys em acco ding o Rousseau and Sylla, Spain su e ed om a numbe o s uc u al sho comings. 30 Indeed, wi h 25 Pons, ‘Es a egias de c ecimien o’, 12, and ‘In luence o o eign companies’, Pea son, Insu ing he indus ial e olu ion, Albo n, Regula ed li es and Wilkins, ‘Mul ina ional en e p ise’. 26 Pons, ‘In luence o o eign companies’, 51. Fo eign insu e s we e egis e ed as b anch o ices o hei mo he company. They did no decla e equi y capi al, and hei only inancial suppo agains liabili ies in Spain we e hei accumula ed ese es, al hough head o ices we e expec ed o back hei ope a ions. 27 Pons, ‘Las emp esas ex anje as’, 200. Pons, ‘Di e si icación y ca elización’, 584–5, also desc ibes he Comi é Cen al de Compañías de Segu os con a Incendios as a p eceden in he nine een h cen u y. 28 Pea son, ‘Las compañías de segu os ex anje as’, 116-8. 29 Malo de Molina and Ma ín-Aceña, ‘In oduc ion’, 4–5, and Pons, ‘The main e o ms’, 73–6. 30 Rousseau and Sylla, ‘Financial Sys em, G ow h and Globaliza ion’, 374–7. These ea u es a e p esen ed as ollows: (1) public inance, including i s deb managemen , is un p uden ly; (2) a s able cu ency; (3) p i a e comme cial banks in ol ed in in e na ional and/o domes ic inancial business; (4) mone a y au ho i y ha can ac o s abilize domes ic inances and manage in e na ional inancial ela ions, and (5) a well- unc ioning secu i ies ma ke . 16 heo y amewo k, manage s would ha e had o decide be ween h ee app oaches in o de o educe o keep s able his p obabili y o uin: (1) imp o e he pe o mance o he po olio, (2) accumula e capi al, o (3) pu chase einsu ance. 54 In he i s case, manage s could inc ease he ne su plus o he po olio ei he by aising he p ice o insu ance o by inc easing low- a iance isk con ac s. Such a s a egy, howe e , seems less likely in a compe i i e ma ke such as he Spanish one in he pe iod o s udy. I also seems less likely ha companies we e able o inc ease he numbe o low- a iance isk con ac s, which e en in he case o a oiding educing p ices would be di icul since, acco ding o Deels a and Plan in, such isks a e he mos inelas ic pa o he ma ke . In he second op ion, inc easing capi al could be a di icul ask o Spanish insu ance companies du ing his pe iod. Though he inancial sys em had p og essed since 1900, a lack o di e si ica ion o specializa ion and business ins abili y emained, as did he p oblems o he banking indus y, which con inued o be he main componen o he inancial sys em. 55 These elemen s obs uc ed he capi aliza ion o he Spanish insu ance indus y. Indeed, immedia ely be o e he ou b eak o he Spanish Ci il Wa , he insu ance indus y showed sho ages o capi al ha esul ed in ex ao dina ily high le els o le e age. 56 Faced wi h an unde capi alized inancial ma ke and a high le el o liabili ies, einsu ance seem o ha e been mo e a ac i e o domes ic insu e s han o eign companies on he expanding Spanish i e insu ance ma ke . In o de o de e mine whe he such a p e e ence was p edominan among Spanish insu ance companies o he ou come o he Spanish insu ance ma ke in gene al, he ollowing analysis will ocus on he de e minan s o einsu ance. The 54 Dohe y and Tinic, ‘Reinsu ance unde equilib ium’, Plan in and Roche , When insu e s go bus and Deels a and Plan in, Risk heo y and einsu ance, 27–8. 55 Malo de Molina and Ma ín-Aceña, The Spanish Financial Sys em. 56 The P/S a io (p emiums ea ned o e su plus) is widely accep ed as a alid indica o o le e age. The sample o i e insu e s used in Kade e al., ‘De e minan s o einsu ance’ in he case o Sweden be ween 1919 and 1939, shows mean alues o he P/S a io o 0.410. Using o icial agg ega e da a om he Di ección Gene al de Segu os o 1942, Gu ié ez, El con ol de di isas, 48, displays a alue o Spain o 1.741. 17 analysis aims a iden i ying whe he he e was a sys emic p e e ence o pu chasing einsu ance based on he coun y o o igin (na ionali y), o whe he einsu ance pu chase was he ou come o i m-speci ic condi ions. II The e a e no comple e published o edi ed o icial s a is ical se ies on Spanish einsu ance un il 1942. The a ailable da a o he insu ance indus y as a whole a e he annual epo s in he Bole ín O icial de Segu os, Bole ín O icial de la Inspección Me can il y Bole ín O icial de Segu os y Aho o, which include he p emiums unde w i en om 1911 o 1935. Edi ed in o ma ion on he p emiums einsu ed, ese es, claims expe ience, liquidi y indica o s, and o he inancial da a a e only a ailable o a ew yea s. 57 To o e come his lack o s a is ics, we ha e collec ed he inancial balances sen by companies o he egula ion agency a e 1908 and cu en ly loca ed a he A chi o Gene al de la Adminis ación (AGA). 58 These include he main accoun ing shee s o he companies: s a emen s o inancial posi ions and p o i and loss accoun s. F om hese documen s we ha e collec ed he p emiums ea ned, claims paid, einsu ed p emiums, cash and liquid asse s in bank accoun s, equi y capi al decla ed, and ongoing- isks ese es. Be ween 1908 and 1936, he e we e 117 companies au ho ized o unde w i e i e insu ance policies in Spain. Howe e , only a hi d o hem ope a ed h oughou he pe iod wi hou in e up ion. New en ances and exi s om he i e b anch as well as liquida ion p ocesses de e mined a highly changing scena io in which he o al numbe 57 Comisa ía Gene al de Segu os, Memo ia sob e las en idades de segu os que ope an en España, 1911, 1912, 1913, 1915. 58 AGA (1) 26 - Cajas I1 o I-141 Top. 13/31 and AGA (1) 26 - Cajas 11/02131 o 11/02180. The obliga ion o epo hei ope a ions was es ablished wi hin he legal amewo k o he 1908 Inspec ion and Regis y Ac . Al hough he e a e companies epo ing a e 1908, he s anda d model o epo was no de ined un il 1912. 18 o companies egis e ed o each yea a ied be ween 46 in 1912 and 79 in 1934. Besides his ola ili y, he e is a g ea deal o missing da a due o di e en easons: many o ices sen incomple e in o ma ion on hei ope a ions; some di e si ied companies epo ed mixed da a om a ious b anches; and, inally, insu e s au ho ized o unde w i e i e business ha we e e ea ing om he b anch, o e en no selling policies, showed abno mally low alues o main indica o s. Consequen ly, hose en ies showing a la ge amoun o missing and/o ex eme da a ha e been excluded om he da ase . Ou ull sample includes 62 insu e s dis ibu ed along he pe iod 1908–1934 and luc ua ing om 41 in 1915 o 33 companies in 1931. The yea s be o e 1910 and a e 1932 show a clea lack o da a om i e insu e s, wi h ewe han 15 companies epo ing hei ope a ions, so hese ha e been analysed sepa a ely. As a esul , compa ed o he da a om Pons, ou da ase includes be ween 80% (in 1912) and 45% (in 1931) o o al companies au ho ized o each yea . 59 Howe e , in e ms o ma ke sha e, he sample ep esen s no less han 85% o o al p emiums ea ned (as we ha e excluded mos local companies and small mu ual socie ies wi h less han 1% o ma ke sha e). 60 Rega ding he na ionali y o he companies, he sample includes 27 Spanish, 15 B i ish, en F ench, h ee Swiss, h ee Ge man companies, and one each om he Uni ed S a es, I aly, Denma k, and Po ugal. 61 Among he Spanish companies, we include only h ee mu ual socie ies; despi e he numbe o his kind o socie y in he Spanish i e b anch, mos o hem ope a ed wi hin a local scope and unde w o e only mino amoun s o business. 59 Pons, ‘Es a egias de c ecimien o’, Appendix 3. 60 Fo example, Pons, ‘Es a egias de c ecimien o’, es ima es o al i e insu ance p emiums ea ned in Spain in 1930 a 76.5 million Pese as, while ou sample eaches 73.4 million. 61 As shown in he i s sec ion, he ac ual na ionali y o companies was a con o e sial issue in his pe iod. This sample includes h ee companies wi h a signi ican p esence o o eign capi al: La Unión y el Fénix Español, Hispania and Numancia. 19 Table 2 includes he main desc ip i e s a is ics (mean and s anda d de ia ion) o he key a iables buil om he da a collec ed. Ou dependen a iable, einsu ance (REIN), is exp essed as he pe cen age o einsu ed p emiums o e he o al amoun o p emiums ea ned. Wi h ega d o ou independen a iables, he p e ious li e a u e has s a ed a posi i e ela ion be ween le e age and he p obabili y o uin, which, in u n, connec s i posi i ely wi h einsu ance. 62 Though he p emium o su plus a io (P/S) has equen ly been used as an indica o o le e age in he li e a u e, i shows se e al limi a ions in ou sample. 63 Se e al Spanish s ock companies showed di e ences up o 70% be ween equi y capi als decla ed and e ec i ely deposi ed. Mu ual socie ies add u he he e ogenei y, since hey ha e no equi y capi al. Fo eign o ices did no decla e equi y capi al in Spain because, acco ding o insu ance egula ions, hey ecei ed inancial suppo om hei headqua e s. 64 Sea ching o a homogeneous indica o , we seek a a iable exp essing he a ailable esou ces alloca ed by he company o ace he liabili ies esul ing om policies in o ce. The e o e, we ha e chosen he ongoing- isks ese es as a a iable common o all kinds o insu e s and one ha is only subjec ed o manage ial decisions, unlike o he s a is ics s ic ly ma ked by legal obliga ions. The Regis y Ac o 1908 es ablished he minimum amoun o ongoing isk ese es as one hi d o w i en p emiums, and he lack o con ol un il he end o each exe cise le many companies ope a e du ing mos o he yea unde his limi , while o he s decided o o m la ge ese es, always depending on he o ice s a egy. 65 62 Maye s and Smi h, ‘Co po a e demand o insu ance’ and Maye s and Smi h, ‘E idence om einsu ance ma ke ’. 63 P/S a io is de ined as ne p emiums w i en o e o al su plus. Idem, Cole and McCullough, ‘A eexamina ion o he co po a e demand’ and Kade e al., ‘De e minan s o einsu ance’ used he sum o equi y and ese es as su plus alue. 64 A e se e al con o e sies on he issue, he Royal O de o 1s o Ap il o 1913 obliged o eign insu e s o decla e as equi y capi al he amoun co esponding o hei head o ices. Ac ually, hese sums we e no deposi ed in Spain no hey we e subjec ed o Spanish legisla ion. 65 See Regula ion on he implemen a ion o he Regis y Ac o 1908, o Feb ua y 2nd o 1912, in Gace a de Mad id 49, 18/02/1912. The i ms in ou sample show ha he a e age le e age was oo high o mee hese legal equi emen s: ongoing isk ese es made up only 25.4% on he w i en p emiums. 20 Consequen ly, ou a iable ac s as an indica o o he sol ency isk o he company and as a p oxy o pa ial le e age (LEV), since i is con on ing he o al business w i en by he insu e o he amoun o esou ces ha he manage s a e willing o ie up in o de o ace e en ual liabili ies. 66 LEV is calcula ed as he pe cen age o o al p emiums ea ned o e ongoing- isks ese es. Gi en ha einsu ance se es o educe he exposu e o unexpec ed claims, p e ious au ho s ha e conside ed loss a io o be closely and posi i ely ela ed o einsu ance pu chases. 67 In line wi h his, we use loss a io (LOSS), exp essed as he pe cen age o o al claims paid o e p emiums ea ned. Plan in a gues ha insu e s wi h ewe liquid asse s a ailable a e expec ed o pu chase mo e einsu ance in o de o o e come hei cash- esou ces cons ain s. 68 In ou esea ch, liquidi y (LIQ) is equal o he pe cen age o o al liquid asse s (cash and bank accoun s) o e cu en liabili ies, exp essed as ongoing ese es. Acco ding o he p e ious li e a u e, size is expec ed o be nega i ely ela ed o einsu ance, since small companies a e mo e sensi i e o losses. 69 We exp ess size (SIZE) as he na u al loga i hm o o al business unde w i en. Finally, olde companies a e expec ed o ha e a wide knowledge o he ma ke and o be mo e e icien . 70 In he case o insu ance, his expe ience would appea as a lowe loss ola ili y in he isk po olio; hus, age would be nega i ely ela ed o einsu ance. In his esea ch, age (AGE) is exp essed as he o al yea s o ope a ion o he company on he Spanish insu ance ma ke . 66 As shown by Pons, ‘Las en idades asegu ado as’, 345–6, hese ese es should be o med wi h cash esou ces and low yield secu i ies as Spanish S a e bonds, public secu i ies om o eign s a es wi h a es o e u n lowe han 4%, co po a e deb secu i ies and bonds aded in Spanish s ock ma ke bu only i hey main ained he 75% o hei nominal alue, and mo gage bonds, which could no exceed 25% o he o e all ese es alue. 67 Maye s and Smi h, ‘E idence om einsu ance ma ke ’ and Lamn-Tennan and S a ks, ‘S ock e sus mu ual’. 68 Plan in, ‘Does einsu ance need einsu e s?’. 69 Adams, ‘The einsu ance decision’ and Adiel, ‘Reinsu ance’. 70 Jo ano ic, ‘Selec ion’. 21 Table 2. Fi e insu ance companies in Spain (1908-1934). Desc ip i e s a is ics o i m- speci ic a iables by na ionali y and o ganiza ional o m. Mean and (s anda d de ia ion). Sign Full Sample Spanish B i ish F ench O he All Mu ual REIN . 30.21 41.68 82.87 16.26 25.77 41.52 (24.72) (24.03) (6.21) (16.31) (18.47) (32.66) LEV + 392.77 442.34 650.23 350.53 358.62 414.12 (202.12) (249.88) (121.29) (131.74) (158.41) (227.32) LOSS + 35.62 31.36 28.64 44.65 34.52 27.50 (25.26) (18.61) (27.38) (32.95) (20.12) (22.75) LIQ - 114.57 121.35 64.35 120.85 52.84 185.32 (332.40) (134.50) (34.81) (493.28) (72.86) (466.20) SIZE - 12.30 12.71 12.16 12.17 12.41 11.26 (1.47) (1.71) (0.36) (1.00) (1.42) (1.14) AGE - 30.07 25.56 20.58 36.65 33.16 18.89 (20.03) (18.18) (8.31) (24.10) (14.80) (14.98) No. o i ms 62 27 3 15 10 10 No e: REIN = P emiums einsu ed / P emiums ea ned, in %; LEV = P emiums ea ned / Ongoing- isks ese es, in %; LOSS = Claims / P emiums ea ned, in %; LIQ = Cash + Bank accoun s / Ongoing- isks ese es, in %; SIZE = Na u al loga i hm o p emiums ea ned; AGE = nº o yea s since he i s egis a ion in i e b anch in Spain. Sou ce: AGA (1) 26 - Cajas I-1 o I-141 Top. 13/31 and AGA (1) 26 - Cajas 11/02131 o 11/02180; Comisa ía Gene al de Segu os, Memo ia sob e las en idades de segu os que ope an en España, Yea s 1911, 1912, 1913, 1915. To examine whe he einsu ance pu chases go beyond ha o i m-speci ic cha ac e is ics, we ha e employed na ionali y as a p oxy iden i ying sys ema ic p e e ence. We classi y ou sample acco ding o na ionali y (Spanish, B i ish, F ench, and O he ), gi en ha we suppose a g ea e inclina ion o pu chase einsu ance o domes ic companies acing mo e o he s uc u al sho comings o he Spanish inancial sys em. Gi en ha o eign companies we e in eg a ed in o hei home coun y’s capi al ma ke s, we expec a lowe need o einsu ance o o e come inancial sys em sho comings. 22 To iden i y a p e e ence o einsu ance based on o ganiza ional o m, we ha e sepa a ed mu ual socie ies om join -s ock companies, since p e ious li e a u e s a es ha o ganiza ional o m has a deep in luence on he pe o mance o he isk po olio. 71 Acco ding o his, we expec mu ual socie ies o demand mo e einsu ance han do s ock companies, as hey su e ed om capi al cons ain s de i ed om hei lack o equi y capi al. Finally, o coun y-le el con ol a iables we conside wo mac oeconomic indica o s ha a e expec ed o a ec einsu ance demand. Fi s , we use he GDP eal g ow h (GRTH) om Ca e as and Ta unell, Es adís icas his ó icas, since economic g ow h is expec ed o inc ease insu ance co e ing demand, which, in u n, would posi i ely a ec einsu ance se ices. 72 Second, we use he Pese a/F ench F anc (FF) exchange a e in o de o measu e he mone a y e ec on he demand o o eign einsu ance. Thus, we conside ha he lowe /highe a e o exchange would imp o e/wo sen he posi ion o Spanish insu e s in o de o pu chase o eign einsu ance, which would esul in highe /lowe einsu ance a ios. Be ween o icial exchange a es, we use he F ench F anc no only because o he close links wi h he F ench ma ke bu also o i s be e pe o mance compa ed o he B i ish Pound, wi h espec o o he mac o indica o s such as in la ion and legal in e es a es. As shown in Table 2, he mean einsu ed po ion o isks in he Spanish i e insu ance indus y eached almos 30% o he business. Howe e , looking a he s anda d de ia ion, he e we e subs an ial di e ences wi hin he sec o . O ganizing he da a acco ding o na ionali y i can be seen ha , as we expec ed, Spanish companies pu chased mo e einsu ance han did B i ish o F ench ones. Ce ainly, hese o ices 71 P ie o, El easegu o: unción económica, Pea son, ‘De elopmen o einsu ance’, Adams, ‘The einsu ance decision’ and Kade e al., ‘De e minan s o einsu ance’. 72 We use GDP da a a ma ke p ices and he main p ice index, bo h by P ados de la Escosu a, in Ca e as and Ta unell, Es adís icas his ó icas, 1291; 1331. 23 would ha e access o he inancial suppo o hei mo he companies, which in u n had di ec con ac wi h mo e capi alized inancial ma ke s. Le e age shows a simila end, wi h Spanish companies eaching highe alues han B i ish and F ench ones, and mu ual socie ies su passing he es . Companies om o he coun ies a e a he he e ogeneous and include only a ew companies o each o igin. Danish, US, I alian, and Po uguese companies showed s able alues nex o he ull sample mean le els o einsu ance and le e age. Howe e , Ge man companies p esen ed much highe alues: einsu ance a ios oscilla ed om 60 o 95% a e he ou b eak o he Fi s Wo ld Wa and du ing he mone a y dis o ions o he 1920s, while le e age in his pe iod in he case o No d Deu sche was no lowe han 600. Finally, Swiss companies displayed an in e es ing asymme y: while le e age le els emain be ween 200 and 300 o all companies – ha is, lowe han he es o he sample – einsu ance a ios a ied om he app oxima ely 55% o La Baloise o he 8% o La Fede ale. This could be explained as a Swiss anomaly, since hese companies had di ec access o a highly e icien capi al ma ke and, a he same ime, can be expec ed o ha e been in close con ac wi h one o he mos ad anced einsu ance ma ke s in he wo ld. In his scena io, he decision o einsu e would no a ise om a inancial necessi y, bu om a manage ial decision ela ed o o he elemen s. Fo example, he low a es o e en ion o La Baloise could be explained wi h he igh links he company had wi h he einsu ance indus y: ce ainly, he o ice was e y close o he Basle Handelbank, which was one o he main sha eholde s and ounding membe o Swiss Re. 73 As a consequence o his high he e ogenei y, we include hese companies in he ull sample, bu no as a sepa a e analysis g oup. 73 James e al., The alue o isk, 247. 24 Rega ding he Spanish, B i ish, and F ench companies, he igu es indica e a posi i e co ela ion be ween einsu ance and le e age, despi e a high dispe sion o alues. Wi h ega d o loss a io indica o s, one can see ha B i ish and F ench i e insu ance companies had high igu es compa ed o he Spanish ones (and he o he na ionali ies). Figu es on ola ili y show ha B i ish insu e s especially aced g ea a ia ions in loss a io. A close examina ion shows ha mos jumps in he loss a io a e a ibu ed o wo kinds o ex eme alues: hose p oduced by abno mally low igu es o p emiums ea ned due o en e ing o exi ing he ma ke , as in he case o Legal and Gene al and Gene al Acciden and Fi e; bu also six en ances co esponding o ca as ophic losses du ing 1909, 1912 and 1914. Liquidi y indica o s show he manage ial p ac ices o o eign insu e s ha would keep minimum esou ces in he coun y in o de o maximize he e u ns o hei in es men in he hos ma ke , while Spanish companies displayed a somewha g ea e p e e ence o main aining liquid asse s. Howe e , bo h g oups a e highly he e ogeneous, as indica ed by s anda d de ia ion alues. Wi h ega d o size, i shows homogeneous alues o all na ionali ies, while in he case o age he e a e la ge in e nal de ia ions inside g oups and di e ences be ween na ionali ies in a ou o o eign companies, which could balance he le els o ma ke knowledge o di e en coun ies o o igin. Finally, as a c oss a iable, da a on mu ual socie ies ha e been sepa a ed om he Spanish sample. As shown in he able, hese socie ies a e he mos p one o use einsu ance, bu a e also hose wi h highe le els o le e age and lowe le els o liquidi y. In pa allel, hei loss a ios a e below he mean o he ma ke and hey a e among he younges companies ope a ing in he i e b anch. 25 III To empi ically examine he de e minan s o einsu ance, we ha e employed a panel da a app oach. Since one o he key a iables (na ionali y) is ime-in a ian , we s a wi h a basic andom-e ec s model, using he ollowing eg ession equa ion: REINi = α + ∑ β Xi + β Y + β U + β V + εi whe e REINi is he a io o einsu ed p emiums o company i in yea ; Xi ep esen s he na ionali y o he company (NATSP o Spanish; NATUK o B i ish; NATFR o F ench); Y e e s o o ganiza ional o m (OF); U is he ec o o mac o a iables including exchange a e (EXCH) and GDP g ow h in eal e ms (GRTH); and V is he ec o o i m-speci ic a iables including LEV, LOSS, LIQ, SIZE and AGE. To iden i y he pai wise ela ion ac oss he a iables employed in ou analysis, we build a co ela ion coe icien ma ix including na ionali y, o ganiza ional o m, coun y-le el da a, and i m-speci ic indica o s so as o iden i y he sign, in ensi y, and s a is ical signi icance o he pai wise ela ions be ween a iables. As shown in Table 3, na ionali y and o ganiza ional o m ha e a signi ican co ela ion wi h einsu ance: Spanish companies a e expec ed o einsu e mo e han B i ish ones, while mu ual socie ies a e mo e p one o pu chase einsu ance han a e s ock companies. Wi h ega d o mac oeconomic a iables, GDP g ow h has an insigni ican impac on einsu ance, while exchange a e shows a signi ican nega i e co ela ion, as hypo hesized. Fi m-speci ic a iables pe o m in di e se ways. Le e age is signi ican ly and posi i ely co ela ed wi h einsu ance, as p edic ed. Loss a io shows a weak bu s a is ically signi ican in e se co ela ion wi h einsu ance, which is con adic o y o he isk a e sion amewo k. As we expec ed, age is signi ican ly and in e sely co ela ed wi h einsu ance, while size and, especially liquidi y, ha e less impac . Rega ding co ela ions be ween independen a iables, na ionali y indica o s show he 32 e y weak. Wi h ega d o size, i comp ises a s a is ically signi ican impac on einsu ance (p- alue < 0.001): as s a ed in he p e ious li e a u e, small companies pu chased mo e einsu ance so as o inc ease hei p esence on he ma ke wi hou accumula ing new capi al esou ces. Fu he mo e, hey a e mo e sensi i e o loss ola ili y since hei a io o liabili ies o e asse s is highe . 79 In addi ion, he cha ac e is ic o his a iable as a “ca chall” o he a ia ions in he es o he i m- speci ic a iables con ibu es o i s high signi icance (see Appendix 4). Finally, he o he i m-speci ic a iables show no signi icance in ou model, as hey a e a ec ed by he a o emen ioned mul icollinea i y p oblems. In ela ion o he ole o o ganiza ional o m, he Hausman es was no s a is ically signi ican (p- alue > 0.010), indica ing ha a andom-e ec s model was mo e app op ia e. Table 5 displays he second se o es ima o s applied o e a sample es ic ed o Spanish companies. The pe o mance o o ganiza ional o m shows a s ong and posi i e impac in he use o einsu ance (p- alues < 0.005). This is consis en wi h he p e ious li e a u e: mu ual socie ies pu chased mo e einsu ance han did s ock companies, since hey su e ed om ex a capi al cons ain s due o hei lack o equi y capi al. 80 In he case o Spanish mu ual socie ies, his endency o einsu e has been no ed as a g ow h s a egy in indi idual cases like Mu ua Gene al de Segu os. 81 Acco ding o he esul s, his was likely a common p ac ice in p ope y insu ance, in such a way ha mu ual socie ies collec ed high commissions and kep hei posi ion in he local ma ke s, whe e hey ope a ed h ough an in ense use o einsu ance. 79 Maye s and Smi h, ‘E idence om einsu ance ma ke ’, Adams, ‘The einsu ance decision’, Adiel, ‘Reinsu ance’ and Dickson and Wa e s, ‘Reinsu ance and uin’. 80 Pea son, ‘De elopmen o einsu ance’, no ed he use o einsu ance as a way o small s ock companies and mu ual socie ies o inc ease hei ma ke sha e, while Adams e al., ‘Mu uali y’, Adams e al., ‘Compe ing models’, Kade e al, ‘De e minan s o einsu ance’ and Lilljeg en and Ande sson, ‘Va ia ion in o ganiza ional o m’ ound ha Swedish mu ual socie ies we e less p one o einsu e since hey we e ela i ely less exposed o unexpec edly high losses. 81 Gu ié ez and Pons, ‘Risk managemen ’. 33 Table 5. Reinsu ance de e minan s in Spanish i e insu ance companies (1908-1934). Random e ec linea eg ession wi h o ganiza ional o m, exchange a e and i m- speci ic a iables. (1) (2) ORG 41.378a (12.205) 35.302a (13.108) FALSE 14.100c (7.262) 12.702c (7.404) EXCH -15.578a -15.880a (2.840) (2.996) LEV 0.016b (0.008) LOSS 0.068 (0.046) LIQ -0.009 (0.008) SIZE -3.407b -4.985a (1.501) (1.702) Cons . 88.492a 100.606a (20.003) (22.382) R2 wi hin 0.136 0.172 be ween 0.394 0.425 o e all 0.195 0.232 a, b, c S a is ically signi ican a he 1%, 5% and 10% le el. No e: ORG = 1 o mu ual, 0 o s ock company; FALSE =1 i alse Spanish company, 0 o he ise; EXCH = O icial exchange a e o Pese a / 100 F ench F ancs (FF); GRTH = % a e o GDP g ow h in eal e ms; LEV = P emiums ea ned / Ongoing- isks ese es, in %; LOSS = Claims / P emiums ea ned, in %; LIQ = Cash + Bank accoun s / Ongoing- isks ese es, in %; SIZE = Na u al loga i hm o p emiums ea ned. Sou ce: AGA (1) 26 - Cajas I-1 o I-141 Top. 13/31 and AGA (1) 26 - Cajas 11/02131 o 11/02180; Comisa ía Gene al de Segu os, Memo ia sob e las en idades de segu os que ope an en España, Yea s 1911, 1912, 1913, 1915. To con ol o he po en ial e ec o o eign go e ned Spanish companies, we included a dummy o ‘ alse Spanish companies’. The impac o o eign go e nance on einsu ance was s a is ically signi ican and posi i e in bo h models. Howe e , he pe o mance o he h ee alse Spanish companies included in ou sample equi es u he explana ion. Numancia was included in a g oup o Ge man-owned capi al wi h o he s o ices such as Plus Ul a, which ope a ed in he anspo b anch. In he second case, Hispania was ounded in 1902 by in es o s om Ca alonia in o de o sell wo k- acciden insu ance policies. In 1911, i began ope a ions in he i e line bu , h ee yea s 34 la e , i was bough by he Swiss Zu ich. A emp ing o specialise he company in he wo k-acciden line, he new manage s assumed he policies in o ce, and in 1916 le he i e b anch. As a esul , mos o he business in 1914, 1915 and 1916 was einsu ed o Zu ich. 82 Finally, La Unión y el Fénix Español was cons i u ed wi h a 58.22% o non- Spanish capi al, hough i was declining o e he ollowing decades. 83 In pa allel hough, he company main ained a special agency in Pa is whose di ec business was de o ed o he Spanish ma ke . Addi ionally, he inancial sou ces o he company we e based in Spain, showing close ela ions wi h he Banco de España and, du ing he 1920s, wi h he Banco Hipo eca io de España. In his way, he special einsu ance pe o mance could be ela ed no o i s o eign sha eholde s, bu o i s ole as he ga eway o o eign einsu ance o a subs an ial sha e o Spanish insu e s. 84 Suppo ing he esul s ob ained in he model p esen ed in Table 4, exchange a e holds a signi ican and nega i e co ela ion wi h einsu ance pu chases. As ega ds i m-speci ic a iables, size is again he only one wi h a s a is ically signi ican impac on einsu ance (a he 5% le el in he comple e model). In con as , le e age, loss a io, and liquidi y show no signi icance wi hin he model. Taking in o accoun he esul s shown in bo h models, einsu ance seems o be a widely used de ice by Spanish companies in o de o enhance hei unde w i ing capaci y. In ac , con olling o i m-speci ic a iables and paying a en ion o a iable coe icien s (Table 4), his indica es ha Spanish na ionali y holds a s ong p e e ence o einsu ance. In iew o he di e ences de i ed om na ionali y ega ding access o capi al esou ces, his s ong sys ema ic p e e ence could be conside ed o be due o he 82 Pons, El g upo Zu ich. 83 To ella e al., La His o ia del segu o, 121. 84 Gu ié ez and Pons, ‘Risk managemen ’, 6–9, desc ibes his ole and connec s i o he in e na ional scope o he company. 35 con ibu ion o o eign einsu ance as a unding p o ide o enhance he unde w i ing capaci y on he unde capi alized Spanish insu ance ma ke . Fu he mo e, he inancial ole o einsu ance as a key elemen in he de elopmen o he Spanish insu ance ma ke connec s wi h o he dimensions no ed in he p e ious li e a u e and ela ed o ma ke s uc u ing and in e na ionaliza ion managemen . I seems clea ha , as s a ed in he p e ious li e a u e, einsu ance se ed as he main channel o small local companies and mu ual socie ies o pa icipa e in a dense ne wo k managed by big companies, such as La Unión y el Fénix Español, capable o co e ing local isks by using hei in e egional and e en in e na ional unde w i ing capaci y. 85 Ce ainly, einsu ance played a majo ole in he globaliza ion o Spanish isks, bu also in he s a egy o in e na ionalizing Spanish o ices such as La Unión y el Fénix Español. Following he p ocedu e o B i ish companies like Phoenix Assu ance, analysed by T ebilcock and Kob ak, his company used einsu ance so as o b eak in o new ma ke s such as F ance, I aly, Belgium and he Uni ed S a es. 86 IV Knowledge and echnology ans e bene i ed insu ance p o ide s in con inen al Eu ope. The de elopmen o new de ices like einsu ance allowed hem o deal wi h la ge isks and wi h inancial cons ain s. Ce ainly, as an impe ec subs i u e o capi al, einsu ance enhanced unde w i ing capaci y and ac ed as a unding p o ide o insu e s. Simul aneously, einsu e s buil wide ne wo ks o isk exchange which, in u n, con ibu ed o mode nizing pe iphe al la ecome s. 85 Gu ié ez and Pons, ‘Risk managemen ’ 86 Idem. Fo he case o Phoenix, see T ebilcock, Phoenix Assu ance, Kob ak, ‘USA: In e na ional a ac ion’. 36 In he Spanish case, he insu ance indus y de eloped quickly oge he wi h he es o he economy om 1870 o he ou b eak o he Ci il Wa in 1936. Fo eign in es men and new managemen ocuses con ibu ed o he g ow h o he indus y. Howe e , he sca ci y o capi al esou ces and he unde capi aliza ion issue emained he main sho comings on he Spanish insu ance ma ke h oughou he pe iod. Sys emic imbalances and igidi ies, as well as a lack o di e si ica ion in he inancial sys em, de ined an insu ance indus y a ec ed by capi al cons ain s and high le els o le e age. Acco ding o he empi ical esul s, einsu ance played a key ole in a oiding hese sho comings as an enhance o he unde w i ing capaci y o domes ic insu e s and, in pa allel, as a de ice o dealing wi h unde capi aliza ion issues. As expec ed, na ionali y and o ganiza ional o m ope a ed as high-impac ac o s de ining einsu ance s a egies. Ce ainly, when con olling o i m-speci ic a iables, we no e ha he pe o mance o Spanish insu e s elied hea ily on hei access o he einsu ance ma ke , as hey we e signi ican ly mo e p one o einsu e han we e B i ish and F ench o ices. In con as o o eign companies, and aking in o accoun he di e ences ela ed o na ionali y ega ding he access o capi al ma ke s, einsu ance se ed as a majo sou ce o capi al unding o domes ic insu e s. These indings a e consis en wi h p e ious s udies dealing wi h he o ganiza ion o einsu ance lows in Spain and he links be ween local ma ke s and global ne wo ks. In his sense, ou s udy con ibu es by empi ically es ing he impac o einsu ance on unde capi alized and de eloping economies, and by o e ing a quan i a i e measu e o his in luence on he mode niza ion and de elopmen o he insu ance ma ke . Ou analysis u he sugges s ha a ound 20% o he unde w i ing capaci y on he unde capi alized Spanish insu ance ma ke was supplied by o eign einsu ance 37 ne wo ks. We show ha he p o ision o o eign capi al was a necessi y o keep pace wi h he demand a ising om he p ocess o capi al o ma ion; i e insu ance mee a c i ical need in bo h imp o ing inancial p o ec ion (colla e al) and mi iga ing indemni y o losses due o unexpec ed isks. Howe e , he capi al impo may ha e exace ba ed he balance o paymen di icul ies unless he p oduc i i y g ow h ollowing he ein o ced capi al o ma ion was s ong enough o balance by g ea e commodi y expo . 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