Government Intervention through an Implicit Federal Backstop: Is There a Link to Market Power&quest

David L Eckles () and James I Hilliard ()
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David L Eckles: Insurance, Legal Studies and Real Estate, University of Georgia, 206 Brooks Hall, Athens, GA 30602, U.S.A.
James I Hilliard: W.A. Franke College of Business, Northern Arizona University, 20 W. McConnell Dr. Flagstaff, AZ 86005, U.S.A.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2015, vol. 40, issue 3, 538-555

Abstract: We estimate the impact of exogenous capital shocks, namely the Troubled Asset Relief Program (TARP), on prices in various property-casualty business lines. We hypothesise that these capital shocks may distort insurer incentives. Specifically, insurers may exploit the implicit governmental guaranty by taking additional pricing risks in order to gain market share. Our results do not support this hypothesis. We find no evidence of a company-specific, or industry-wide, moral hazard problem associated with the implicit (explicit, in some cases) federal backstop created by TARP funds.

Date: 2015
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