Life Reinsurance Under Perfect and Asymmetric Information
This paper studies life reinsurance as a solution to default risk in life insurance products. The problem is considered under both perfect and asymmetric information about the insurer's risk profile between the reinsurer and the insurer. In both cases, we analyze the existence of proportional reinsurance and the impact of the insurer's investment strategies on optimal reinsurance. We find that the more risky the insurer's investment portfolio is, the more risk the insurer tends to transfer to the reinsurer. Further, information asymmetry leads to additional information costs and consequently to a larger reinsurance premium and a lower reinsurance share.
Find the preprint of the paper here.