We would like to thank Michael McShane, Van Nguyen, Andriy Shkilko, Bonnie Van Ness, and seminar participants at the University of Mississippi for comments on earlier versions of this article.
Adverse Selection and the Opaqueness of Insurers
Article first published online: 4 MAY 2009
© The Journal of Risk and Insurance, 2009
Journal of Risk and Insurance
Volume 76, Issue 2, pages 295–321, June 2009
How to Cite
Zhang, T., Cox, L. A. and Van Ness, R. A. (2009), Adverse Selection and the Opaqueness of Insurers. Journal of Risk and Insurance, 76: 295–321. doi: 10.1111/j.1539-6975.2009.01300.x
- Issue published online: 4 MAY 2009
- Article first published online: 4 MAY 2009
While adverse selection problems between insureds and insurers are well known to insurance researchers, few explore adverse selection in the insurance industry from a capital markets perspective. This study examines adverse selection in the quoted prices of insurers' common stocks with a particular focus on the opacity of both asset portfolios and underwriting liabilities. We find that more opaque underwriting lines result in greater adverse selection costs for property-casualty (P-C) insurers. A similar effect is not apparent for life-health (L-H) insurers and we find no effect of asset opaqueness on adverse selection for either L-H or P-C insurers.