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

Temple University - Department of Risk, Insurance & Healthcare Management

Martin F. Grace

Temple University - Fox School of Business & Management

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

Temple University - Department of Risk, Insurance & Healthcare Management ( email )

1801 Liacouras Walk
Philadelphia, PA 19122
United States

Martin F. Grace

Temple University - Fox School of Business & Management ( email )

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

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
445
Abstract Views
2,810
Rank
117,547
PlumX Metrics