Life Insurance and Annuity Pricing during the Financial Crisis, Revisited
33 Pages Posted: 9 Mar 2021 Last revised: 16 Jan 2024
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: Suggested Citation