Risk Management and Policy Sales in Life Insurance Companies
72 Pages Posted: 15 Oct 2020
Date Written: September 9, 2020
We study the effect of risk management on policy sales (life insurance and annuities) of life insurers. For identification, we exploit the staggered adoption of Section 711 of the Insurer Receivership Model Act, granting derivatives counterparties of insurers the right to terminate the contract and claim the collateral in case of default. We find that hedging by highly leveraged insurers (those that could default) increased sharply post Section 711, relative to unaffected companies. Importantly, policy sales and market share also increased for affected companies, and they are associated to lower policy prices and higher financial stability due to more hedging.
Keywords: Risk management, policy sales (life insurance and annuities), policy prices, financial stability, market share, market leadership, derivatives superpriority
JEL Classification: G22, G28, G31, G32. G33
Suggested Citation: Suggested Citation