Insurance Shocks
Paper Session
Saturday, Jan. 3, 2026 8:00 AM - 10:00 AM (EST)
- James Choi, Yale University
From Long to Short: How Interest Rates Shape Life Insurance Markets
Abstract
This paper investigates how interest rate fluctuations shape life insurance markets, focusing on the liability adjustments insurers employ to manage interest rate risk. After the 2008 Financial Crisis, insurers exposed to high interest rate risk -- such as those offered variable annuities with minimum return guarantees pre-2008 -- shifted their product portfolios toward short-duration policies to hedge against rising duration gaps. Using a combination of theoretical and empirical analysis, we show that this liability rebalancing led to sizable contractions in both the supply of long-duration life insurance products and the aggregate life insurance market. Our findings reveal that interest rate risk can significantly influence financial intermediaries' liability choices, which in turn shape the composition and availability of financial products.Strategic Claim Payment Delays: Evidence from Property and Casualty Insurance
Abstract
Following adverse events, insurers not only raise premiums but also delay claim payments, potentially imposing high state-contingent costs on clients who experience losses. These delays increase losses payable, one of the largest liability items on insurers' balance sheets, augmenting insurer liquidity analogously to interest-free credit. Claim payment delays are larger and more prevalent for insurers that are less capitalized, less liquid, and those who serve clients who are less likely to complain to the regulator. In addition to losses in the same line of business, delays, unlike premiums, also increase in response to losses in unrelated lines of business.Discussant(s)
Benjamin Keys
,
University of Pennsylvania
Ishita Sen
,
Harvard University
Alexandru Barbu
,
INSEAD
JEL Classifications
- G2 - Financial Institutions and Services