Life Insurance and Annuity Pricing during the Financial Crisis, Revisited

33 Pages Posted: 9 Mar 2021 Last revised: 16 Jan 2024

See all articles by Daniel Bauer

Daniel Bauer

University of Wisconsin-Madison

Lawrence Powell

University of Alabama - Culverhouse College of Commerce & Business Administration

Boheng Su

University of South Florida - Muma College of Business

George H. Zanjani

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: March 6, 2021

Abstract

We reexamine insurance and annuity pricing during the 2008 financial crisis. We find that the existing narrative---of insurers selling policies at significant economic loss to gain statutory accounting benefits---is false. Instead, we show that the pricing was set to produce unusually high rates of return on capital and thus was consistent with standard theories of pricing in the presence of financial frictions. Moreover, we show that experience in 2008 was not extraordinary but 1) mirrored other episodes where corporate borrowing rates rose quickly, and 2) produced, as in earlier and subsequent episodes of bond market stress, an inversion of the expected relationship between price and default risk.

Keywords: Financial Crisis, Insurance, Regulation

JEL Classification: G01, G22, G28

Suggested Citation

Bauer, Daniel and Powell, Lawrence and Su, Boheng and Zanjani, George H., Life Insurance and Annuity Pricing during the Financial Crisis, Revisited (March 6, 2021). Available at SSRN: https://ssrn.com/abstract=3799325 or http://dx.doi.org/10.2139/ssrn.3799325

Daniel Bauer

University of Wisconsin-Madison ( email )

975 University Avenue
Madison, WI 53706
United States

Lawrence Powell

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

Boheng Su (Contact Author)

University of South Florida - Muma College of Business ( email )

8350 N. Tamiami Trail
Sarasota, FL 34243
United States
6073423190 (Phone)

George H. Zanjani

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

361 Stadium Dr, Ste 200
Tuscaloosa, AL 35487
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
167
Abstract Views
887
Rank
322,583
PlumX Metrics