Malpractice insurance finances payments to injured parties on behalf of policyholders who may have responsibility for those injuries. In contrast to such “third-party” coverage, in “first-party” insurance, like automobile collision or fire insurance coverage protection under a homeowner’s insurance policy, the injured party and the policyholder are the same. The first-party insurer’s customer is a potentially injured party. (more…)

OTC derivatives broker-dealers perform measurement and limitation of credit risk not only to private counterparties, but also based on geographic regions, industry groups, and sometimes other categorizations measures. For instance, the Derivatives Policy Group in the year 1995 recommended measurement and disclosure of credit exposure risk by geographic location, industry, and credit rating. Aside from one guesses that such classifications define groups that might act in concert to take benefit of their private information, it may not be obvious that discussion of loans to a privately informed borrower why one wishes to measure limit credit risk concentration by groups. Here again, however, adverse selection can play a role. (more…)

In the finance business, especially in lending business, it is suppose that a borrower lender knows more than its lender. Let say a bank have more informational advantage regarding the borrower credit risk. In the stage of being more advantage, bank may find it more profitable to limit borrower lender’s access to bank’s credit, instead of permitting borrowers to choose the sizes of their own loans without limitation and restriction. (more…)