Moral Hazard in Reinsurance Markets / Neil Doherty, Kent Smetters.

Format:

Book

Author/Creator:

Doherty, Neil.

Contributor:

National Bureau of Economic Research.

Smetters, Kent.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9050.

NBER working paper series no. w9050

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

This paper attempts to identify moral hazard in the traditional reinsurance market. We build a multi-period principle agent model of the reinsurance transaction from which we derive predictions on premium design, monitoring, loss control and insurer risk retention. We then use panel data on U.S. property liability reinsurance to test the model. The empirical results are consistent with the model's predictions. In particular, we find evidence for the use of loss sensitive premiums when the insurer and reinsurer are not affiliates (i.e., not part of the same financial group), but little or no use of monitoring. In contrast, we find evidence for the use of monitoring when the insurer and reinsurer are affiliates, where monitoring costs are lower, but little use of price controls.

Notes:

Print version record

July 2002.