Counterparty Risk in Insurance Contracts: Should the Insured Worry about the Insurer?

We analyze the effect of counterparty risk on insurance contracts using the case of credit risk transfer in banking. In addition to the familiar moral hazard problem caused by the insuree's ability to influence the probability of a claim, this paper uncovers a new moral hazard problem on the other side of the market. We show that the insurer's investment strategy may not be in the best interests of the insuree. The reason for this is that if the insurer believes it is unlikely that a claim will be made, it is advantageous for them to invest in assets which earn higher returns, but may not be readily available if needed. This paper models both of these moral hazard problems in a unified framework. We find that instability in the insurer can create an incentive for the insuree to reveal superior information about the risk of their "investment". In particular, a unique separating equilibrium may exist even in the absence of any signalling device. We extend the model and show that increasing the number of insurers with which the insuree contracts can exacerbate the moral hazard problem and may not decrease counterparty risk. Our research suggests that regulators should be wary of risk being offloaded to other, possibly unstable parties, especially in newer financial markets such as that of credit derivatives.Counterparty Risk, Moral Hazard, Insurance, Banking, Credit Derivatives

GRAIN EXPORTS AS A SOURCE OF AGRICULTURAL INSTABILITY

International Relations/Trade,

Habeas Corpus to Secure Release from Military Service--Retroactive Application of Gutknecht v. United States

In Andre v. Resor the United States District Court for the Northern District of California granted the habeas petition of an Army enlisted man whose induction had been accelerated pursuant to the delinquency regulations held invalid by the Supreme Court in Gutknecht v. United States. The Andre decision-the first to apply Gutknecht retroactively in a civil habeas corpus proceeding-is now on appeal

Space Shuttle Main Engine

The Space Shuttle Main Engine (SSME) is a reusable, high performance rocket engine being developed to meet the performance, life reliability, and operational requirements of the Space Shuttle. Significant engine features include a staged combustion power cycle developing chamber pressure in excess of 3,000 psia, high area ratio nozzle expansion, throttling capability, and. a computer operated engine control system1. The SSME is currently undergoing certification testing at the National Space Technology Laboratoreis focusing on demonstrating maturity and reliability for manned flight this year. Current status regarding engine performance, system characteristics, and test results will be summarized. A comparison of the SSME development and certification programs with engines successfully used in the Saturn Program will be presented

67/11/17 Brief of Americans for Effective Law Enforcement, as Amicus Curiae

Despite the evidence which has been found of cases in which some police have abused field interrogation in some instances - evidence upon which the amicus relies so heavily - the President\u27s Commission on Law Enforcement and Administration of Justice unanimously recommends its adoption and use : The Commission believes that there is a definite need to authorize the police to stop suspects and possible witnesses of major crimes, to detain them for brief questioning if they will not voluntarily cooperate, and to search such suspects for dangerous weapons when such precaution is necessary. This Amicus Curiae requests that the judgment in Terry v. Ohio be affirmed. from Conclusion, p. 3