This paper extends the classic expected utility theory analysis of optimal insurance contracting to the case where the insurer has a positive probability of total default and the buyer and insurer have divergent beliefs about this probability. The optimal marginal indemnity above the deductible...

One of the most significant economic developments of the past decade has been the convergence of the previously separate segments of the financial services industry – particularly the banking and insurance sectors. Convergence has been driven by increasing globalization of the financial...

Models of asymmetric information in insurance markets typically consider insurance buyers with Bernoulli loss distributions differing in expected loss. This article analyzes markets where buyer loss distributions are characterized by mean-preserving spreads and insurers can classify applicants...

Insurance-industry accounts of the liability insurance crisis of the mid-1980s often cite disruption of supply in reinsurance markets as an important contributing factor. Economic theories of the crisis have not explored this explanation for the severity of the crisis. This article investigates...

This article provides new evidence on moral hazard in insurance markets by analyzing the frequency of automobile bodily injury liability (BIL) claims. We conduct cross-sectional regressions of statewide BIL claims frequency rates on variables representing state economic, demographic, and legal...

This paper examines the reaction of the stock prices of U.S. property-casualty insurers to the World Trade Center (WTC) terrorist attack of September 11, 2001. Theories of insurance market equilibrium and theories of long-term contracting predict that large loss events which deplete capital and...

This paper estimates the cost of equity capital for Property/Casualty insurers by applying three alternative asset pricing models: the Capital Asset Pricing Model (CAPM), the Arbitrage Pricing Theory (APT), and a unified CAPM/APT model (Wei, 1988). The in-sample forecast ability of the models is...