Corporate Insurance Design with Multiple Risks and Moral Hazard
18 Pages Posted: 20 Jun 2009
Date Written: May, 24 2009
Abstract
The paper provides novel insights on the effect of a firm's risk management objective on the optimal design of risk transfer instruments. I analyze the interrelation between the structure of the optimal insurance contract and the firm's objective to minimize the required equity it has to hold to accommodate losses in the presence of multiple risks and moral hazard. In contrast to the case of risk aversion and moral hazard, the optimal insurance contract involves a joint deductible on aggregate losses in the present setting.
Keywords: G22, D82
JEL Classification: multiline insurance, umbrella policies, integrated risk management, deductible insurance
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