External Financing in the Life Insurance Industry: Evidence from the Financial Crisis

34 Pages Posted: 20 Aug 2014

See all articles by Thomas Berry-Stölzle

Thomas Berry-Stölzle

University of Iowa - Department of Finance

Greg Nini

Drexel University - Department of Finance

Sabine Wende

University of Cologne - Faculty of Management, Economics and Social Sciences

Date Written: September 2014

Abstract

The financial crisis and subsequent recession generated sizable operating losses for life insurance companies, yet the consequences were far less significant than for other financial intermediaries. The ability to quickly generate new capital through external issuance and dividend reductions let life insurers maintain healthy levels of equity capital. We use this experience to examine the causes and consequences of external capital issuance by U.S. life insurance companies. We show that, in general, new capital is issued both to support the growth of new business and to replace capital depleted by operating losses. This second channel is particularly important during macroeconomic recessions. Notably, we do not find any evidence that insurers had difficulty generating new capital, unlike other financial service providers that required large amounts of public support. For life insurers, what changed following the financial crisis was the demand to raise external capital, but the supply of external capital appears to have remained constant.

Suggested Citation

Berry-Stölzle, Thomas and Nini, Gregory and Wende, Sabine, External Financing in the Life Insurance Industry: Evidence from the Financial Crisis (September 2014). Journal of Risk and Insurance, Vol. 81, Issue 3, pp. 529-562, 2014. Available at SSRN: https://ssrn.com/abstract=2483535 or http://dx.doi.org/10.1111/jori.12042

Thomas Berry-Stölzle (Contact Author)

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

Gregory Nini

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States

Sabine Wende

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Albertus-Magnus-Platz
Cologne, D-50923
Germany

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