Insurers’ Investments and Insurance Prices

Benjamin Knox and Jakob Ahm Sørensen ()
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Jakob Ahm Sørensen: https://sites.google.com/view/jakob-ahm-sorensen/home

No 2024-058, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We develop a theory that connects insurance prices, insurance companies’ investment behavior, and equilibrium asset prices. Consistent with the model’s predictions, we show empirically that (1) insurers with more stable insurance funding take more investment risk and, therefore, earn higher average investment returns; (2) insurers set lower prices on policies when expected investment returns are higher, both in the cross-section of insurance companies and in the time series. Our results hold for both life insurance and property and casualty insurance companies. The findings show that insurers’ asset allocation and product pricing decisions are more connected than previously thought.

Keywords: Insurance pricing; Portfolio choice; Corporate bonds (search for similar items in EconPapers)
JEL-codes: G11 G12 G22 (search for similar items in EconPapers)
Pages: 86 p.
Date: 2024-07-19
New Economics Papers: this item is included in nep-fdg and nep-rmg
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:fip:fedgfe:2024-58

DOI: 10.17016/FEDS.2024.058

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