The Interplay between Insurers' Financial and Asset Risks during the Crisis of 2007-2009

In this study we compare the interplay between capital and asset risks before and during the 2007-2009 financial crisis for the U.S. life and health insurance industries partitioned into segments by product specialisation, size and governance. The results show substantial intra-industry variation in...

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Bibliographic Details
Published in:Geneva papers on risk and insurance. Issues and practice 2011-07, Vol.36 (3), p.348-379
Main Authors: Baranoff, Etti, Sager, Thomas W.
Format: Article
Language:English
Subjects:
Annuities
Business risks
Capital structure
Economic crisis
Economics and Finance
Finance
Financial institutions
Financial risk
Financial services
Health insurance
Hypotheses
Insurance
Insurance and Regulation
Insurance industry
Insurance providers
Insurance regulation
International
International finance
Investment risk
Life insurance
Life insurance companies
Regulation
Reinsurance
Risk Management
Studies
Wall Street Reform & Consumer Protection Act 2010-US
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Summary:In this study we compare the interplay between capital and asset risks before and during the 2007-2009 financial crisis for the U.S. life and health insurance industries partitioned into segments by product specialisation, size and governance. The results show substantial intra-industry variation in the partial elasticity of capital with respect to asset risk, as well as significant impact of the crisis. Segment variation was driven by product focus. Most notable is the greater impact of the crisis on the U.S. insurers specialising in annuities (least risky product) than on specialists in health lines (riskiest product). During the crisis, the elasticity between asset risk and capital declined for all segments indicating that insurers' operation may have shifted from offsetting risk to seeking risk.
ISSN:1018-5895
1468-0440
DOI:10.1057/gpp.2011.15