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Multiple shadow insurance activities and life insurance policyholder protection

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  • Chen, Shi
  • Yao, Wenyu
  • Huang, Fu-Wei

Abstract

This paper develops a contingent claim model to evaluate the equity and liabilities of a life insurer who operates multiple shadow insurance activities specified as wealth management products and entrusted loans. We show that multiple shadow insurance operations by the insurer produce superior return performance and help policyholder protection. Increasing the guaranteed rate at an increased optimal margin contributes to insurance stability whereas increasing the participation rate at a decreased optimal margin adversely affects insurance stability.

Suggested Citation

  • Chen, Shi & Yao, Wenyu & Huang, Fu-Wei, 2021. "Multiple shadow insurance activities and life insurance policyholder protection," Finance Research Letters, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319313868
    DOI: 10.1016/j.frl.2020.101524
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    References listed on IDEAS

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    1. Berger, Allen N. & Bouwman, Christa H.S., 2013. "How does capital affect bank performance during financial crises?," Journal of Financial Economics, Elsevier, vol. 109(1), pages 146-176.
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    3. Eric Briys & François De Varenne, 1994. "Life Insurance in a Contingent Claim Framework: Pricing and Regulatory Implications," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 19(1), pages 53-72, June.
    4. Bohnert, Alexander & Gatzert, Nadine & Jørgensen, Peter Løchte, 2015. "On the management of life insurance company risk by strategic choice of product mix, investment strategy and surplus appropriation schemes," Insurance: Mathematics and Economics, Elsevier, vol. 60(C), pages 83-97.
    5. Lu, Yunlin & Guo, Haifeng & Kao, Erin H. & Fung, Hung-Gay, 2015. "Shadow banking and firm financing in China," International Review of Economics & Finance, Elsevier, vol. 36(C), pages 40-53.
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    Cited by:

    1. Dong, Yan & Dong, Mengyao & Tan, Suhang & Ge, Ran, 2024. "Shadow banking, financial regulation, and bank risk in China," Finance Research Letters, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Insurer interest margin; Shadow insurance; Barrier option;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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