The linkage between life insurer spread behaviour and credit swap transaction: policyholder protection analysis

Jyh-Horng Lin, Pei-Chi Lii, Fu-Wei Huang and Shi Chen

Applied Economics, 2020, vol. 52, issue 33, 3600-3613

Abstract: The paper develops a contingent claim model to evaluate the equity of a life insurer when the insurer could act as a protection buyer or a protection seller in a credit swap transaction market. The investment market and the life insurance market faced by the insurer are assumed to be imperfectly competitive in order to capture the insurer’s asset-leading or liability-reducing spread behaviour. This paper complements the insurance literature by analysing how the effects of credit swap transactions on insurer spread behaviour and policyholder protection, and how they might differ across various degrees of capital regulation, premature default risk, and profit-sharing participation. Our findings offer some useful insights for achieving the stability of the insurance system.

Date: 2020
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DOI: 10.1080/00036846.2020.1715337

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