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Testing for Asymmetric Information in Reinsurance Markets

Author

Listed:
  • Zhiqiang Yan

    (Department of Accounting & Finance, Western Illinois University, Stipes Hall 431, 1 University Circle, Macomb, IL 61455, U.S.A.)

  • Liang Hong

    (Department of Mathematics, Robert Morris University, 6001 University Blvd., Moon Township, PA 15108, U.S.A)

Abstract

Empirical studies on asymmetric information have mainly focused on primary insurance markets, but comparatively little attention has been given to reinsurance markets. This study investigates the existence of asymmetric information by testing for a positive correlation between coverage and ex post risk in three major reinsurance markets for the period 1995–2000 and finds that (1) asymmetric information problems are present in the private passenger auto liability and homeowners reinsurance markets, but not in the product liability reinsurance market; (2) retention limits are widely utilised to mitigate asymmetric information problems; (3) long-term contracting relationships are either rarely used or not effective in controlling asymmetric information problems.

Suggested Citation

  • Zhiqiang Yan & Liang Hong, 2015. "Testing for Asymmetric Information in Reinsurance Markets," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 40(1), pages 29-46, January.
    • Handle: RePEc:pal:gpprii:v:40:y:2015:i:1:p:29-46
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    Citations

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    Cited by:

    1. Martin Eling & Ruo Jia, 2017. "Recent Research Developments Affecting Nonlife Insurance—The CAS Risk Premium Project 2014 Update," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 20(1), pages 63-77, March.
    2. Chang, Vincent Y.L. & Hung, Kuo Ming & Wang, Kili C. & Yang, Sand, 2024. "Information asymmetry in reinsurance through various ceded contracts," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).

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