Internal Capital Markets and Product Pricing: Evidence from Weather and Life Insurance Premiums

Fisher College of Business Working Paper No. 2017-03-27

Charles A. Dice Working Paper No. 2017-27

62 Pages Posted: 10 Nov 2017 Last revised: 21 Jan 2019

See all articles by Shan Ge

Shan Ge

New York University, Stern School of Business

Date Written: January 2019

Abstract

I find that shocks to divisions’ financial conditions affect other divisions’ product pricing using insurance business groups that have both life and P&C (property & casualty) divisions. Following P&C losses, life divisions increase financial transfers to P&C divisions and change prices in a manner that can generate more immediate financial resources: Premiums fall for life policies that initially increase insurers’ financial resources, and rise for life policies that initially decrease insurers’ financial resources. Results hold when using unusual weather damages to instrument for P&C losses, implying shocks to divisions’ financial conditions affect other divisions’ product pricing through internal capital markets.

Keywords: Internal Capital Markets, Product Pricing, Insurance, Financial Constraints

JEL Classification: G22, G28, G30

Suggested Citation

Ge, Shan, Internal Capital Markets and Product Pricing: Evidence from Weather and Life Insurance Premiums (January 2019). Fisher College of Business Working Paper No. 2017-03-27; Charles A. Dice Working Paper No. 2017-27. Available at SSRN: https://ssrn.com/abstract=3067609 or http://dx.doi.org/10.2139/ssrn.3067609

Shan Ge (Contact Author)

New York University, Stern School of Business ( email )

44 W 4th St
Suite 9-160
New York, NY 10012
United States

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