When Gambling for Resurrection is Too Risky

Divya Kirti

No 2017/180, IMF Working Papers from International Monetary Fund

Abstract: Rather than taking on more risk, US insurers hit hard by the crisis pulled back from risk taking, relative to insurers not hit as hard by the crisis. Capital requirements alone do not explain this risk reduction: insurers hit hard reduced risk within assets with identical regulatory treatment. State level US insurance regulation makes it unlikely this risk reduction was driven by moral suasion. Other financial institutions also reduce risk after large shocks: the same approach applied to banks yields similar results. My results suggest that, at least in some circumstances, franchise value can dominate, making gambling for resurrection too risky.

Keywords: WP; interest-rate risk; yield to maturity; issued bond; bonds insurer; fair value; Life insurance; banking; risk shifting; franchise value; financial frictions; capital requirement; risk reduction; Insurance companies; Bonds; Credit risk; Corporate bonds; Insurance (search for similar items in EconPapers)
Pages: 59
Date: 2017-08-01
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: When gambling for resurrection is too risky (2024)
Working Paper: When gambling for resurrection is too risky (2018)
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