Loss volatility, bankruptcy, and the demand for reinsurance

Journal Article (Journal Article)

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. © 1990 Kluwer Academic Publishers.

Full Text

Duke Authors

Cited Authors

  • Hoerger, TJ; Sloan, FA; Hassan, M

Published Date

  • September 1, 1990

Published In

Volume / Issue

  • 3 / 3

Start / End Page

  • 221 - 245

Electronic International Standard Serial Number (EISSN)

  • 1573-0476

International Standard Serial Number (ISSN)

  • 0895-5646

Digital Object Identifier (DOI)

  • 10.1007/BF00116782

Citation Source

  • Scopus