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Shadow Insurance

Ralph Koijen and Motohiro Yogo

No 19568, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Life insurers use reinsurance to move liabilities from regulated and rated companies that sell policies to shadow reinsurers, which are less regulated and unrated off-balance-sheet entities within the same insurance group. U.S. life insurance and annuity liabilities ceded to shadow reinsurers grew from $11 billion in 2002 to $364 billion in 2012. Life insurers using shadow insurance, which capture half of the market share, ceded 25 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. By relaxing capital requirements, shadow insurance could reduce the marginal cost of issuing policies and thereby improve retail market efficiency. However, shadow insurance could also reduce risk-based capital and increase expected loss for the industry. We model and quantify these effects based on publicly available data and plausible assumptions.

JEL-codes: G22 G28 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-ias
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Published as Ralph S. J. Koijen & Motohiro Yogo, 2016. "Shadow Insurance," Econometrica, Econometric Society, vol. 84, pages 1265-1287, 05.

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Journal Article: Shadow Insurance (2016) Downloads
Working Paper: Shadow Insurance (2016) Downloads
Working Paper: Shadow Insurance (2014) Downloads
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