Adverse Selection in Reinsurance Markets
38 Pages Posted: 18 Aug 2011 Last revised: 11 Jul 2014
Date Written: June 21, 2014
This paper looks for evidence of adverse selection in the relationship between primary insurers and reinsurers. We test the implications of a model in which informational asymmetry – and therefore, its negative consequences – decline over time. Our tests involve a data panel consisting of U.S. property-liability insurance firms that reported to the National Association of Insurance Commissioners (NAIC) during the period 1993-2012. We find that the amount of reinsurance, insurer profitability, and insurer credit quality all increase with the tenure of the insurer-reinsurer relationship.
JEL Classification: G22, G13, L15, D81
Suggested Citation: Suggested Citation