Insurers’ Investments and Insurance Prices

86 Pages Posted: 29 Jul 2024

See all articles by Benjamin Knox

Benjamin Knox

Board of Governors of the Federal Reserve System

Jakob Ahm Sørensen

Bocconi University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July, 2024

Abstract

We develop a theory that connects insurance prices, insurance companies’ investment behavior, and equilibrium asset prices. Consistent with the model’s predictions, we show empirically that (1) insurers with more stable insurance funding take more investment risk and, therefore, earn higher average investment returns; (2) insurers set lower prices on policies when expected investment returns are higher, both in the cross-section of insurance companies and in the time series. Our results hold for both life insurance and property and casualty insurance companies. The findings show that insurers’ asset allocation and product pricing decisions are more connected than previously thought.

Keywords: Insurance pricing, Portfolio choice, Corporate bonds

JEL Classification: G11, G22, G12

Suggested Citation

Knox, Benjamin and Sørensen, Jakob Ahm, Insurers’ Investments and Insurance Prices (July, 2024). FEDS Working Paper No. 2024-58, Available at SSRN: https://ssrn.com/abstract=4906266 or http://dx.doi.org/10.17016/FEDS.2024.058

Benjamin Knox (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jakob Ahm Sørensen

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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