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Market discipline and government guarantees: Evidence from the insurance industry

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Listed:
  • Yiling Deng
  • J. Tyler Leverty
  • Kenny Wunder
  • George Zanjani

Abstract

We identify the effect of public guarantees on market discipline by exploiting the variation in US state guarantees of property–casualty insurer obligations. We find that guaranty funds have little effect on the risk‐sensitivity of insurer financing overall, with the exception of rating changes at the key threshold level of A.M. Best's A− rating. For insurers rated A− before a downgrade, we find that premium growth in business not covered by state guarantees falls in relation to growth in business covered by state guarantees. We estimate this difference in growth to be as high as 14.9% for commercial insurers.

Suggested Citation

  • Yiling Deng & J. Tyler Leverty & Kenny Wunder & George Zanjani, 2025. "Market discipline and government guarantees: Evidence from the insurance industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 92(1), pages 76-115, March.
    • Handle: RePEc:bla:jrinsu:v:92:y:2025:i:1:p:76-115
    DOI: 10.1111/jori.12493
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