A simple model of financial grey rhino under insurer capital regulation: an extension

Jyh-Horng Lin, Chuen-Ping Chang and Shi Chen

Applied Economics Letters, 2021, vol. 28, issue 21, 1872-1876

Abstract: A recent study proposes a contingent claim model of financial grey rhino under capital regulation and suggests that stringent capital regulation enhances the insurer’s survival, thereby contributing to insurance stability. This note critically evaluates the relevant study’s objective setting and refines the comparative statics by developing a contingent claim utility model. We show that stringent capital regulation helps policyholder protections, but at the expense of the insurer’s equity return, thus adversely affecting insurer survival.

Date: 2021
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DOI: 10.1080/13504851.2020.1854655

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