Adverse Selection in Reinsurance Markets

38 Pages Posted: 18 Aug 2011 Last revised: 11 Jul 2014

See all articles by James R. Garven

James R. Garven

Baylor University - Department of Finance, Insurance & Real Estate

James I. Hilliard

W.A. Franke College of Business

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science

Date Written: June 21, 2014

Abstract

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

Garven, James R. and Hilliard, James I. and Grace, Martin F., Adverse Selection in Reinsurance Markets (June 21, 2014). Available at SSRN: https://ssrn.com/abstract=1911614 or http://dx.doi.org/10.2139/ssrn.1911614

James R. Garven (Contact Author)

Baylor University - Department of Finance, Insurance & Real Estate ( email )

One Bear Place #98004
Baylor University
Waco, TX 76798-8004
United States

HOME PAGE: http://business.baylor.edu/directory/?id=James_Garven

James I. Hilliard

W.A. Franke College of Business ( email )

PO Box 15066
Flagstaff, AZ 86011
United States
928-523-7901 (Phone)

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

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