The efficiency effects of life settlement on the life insurance market

S. Hun Seog and Jimin Hong

Pacific-Basin Finance Journal, 2019, vol. 56, issue C, 395-412

Abstract: We investigate the effects of life settlement, the securitization of life insurance contracts, on the primary insurance market. We analyze an economic model in which policyholders have different liquidity risks in an overlapping generation setting, and both policyholders and the monopolistic insurer incur liquidity costs. We find that, under some conditions, life settlement may lead to an increase in the insurance demand and a decrease in financing costs. The insurer will have a higher profit when the decrease in financing costs or the increase in demand is sufficiently large. Our findings imply that settlement can enhance the efficiency of the insurance market, which is in contrast with the existing theoretical studies on settlement.

Keywords: life settlement; Securitization; life insurance; Overlapping generation; Welfare (search for similar items in EconPapers)
JEL-codes: D6 G22 G23 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:56:y:2019:i:c:p:395-412

DOI: 10.1016/j.pacfin.2019.06.012

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