Abstract
Insurers in our model reinsure to lower the risk of bankruptcy. In the conceptual part of the study, we show that given bankruptcy cost, reinsurance may be demanded even if the insurer is risk-neutral. The model allows us to assess how the insurer's surplus, size, and volatility of losses affect the amount of reinsurance the insurer purchases. As predicted by our comparative statics analysis, we find empirically that property/casualty and medical malpractice insurers with higher prereinsurance loss volatility, lower surplus-to-premium ratios, and smaller sizes demand more reinsurance.
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Vanderbilt University
University of Alabama at Birmingham
This work was supported in part by a grant from the National Center for Health Services Research (Empirical Analyses of Medical Malpractice Insurance, #5 R01 HS05693-02) to The Urban Institute and Vanderbilt University.
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Hoerger, T.J., Sloan, F.A. & Hassan, M. Loss volatility, bankruptcy, and the demand for reinsurance. J Risk Uncertainty 3, 221–245 (1990). https://doi.org/10.1007/BF00116782
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DOI: https://doi.org/10.1007/BF00116782