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Risk-averse insurer capped-risk sensitive lending during the COVID-19 pandemic

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  • Jyh-Horng Lin
  • Ching-Hui Chang
  • Shi Chen

Abstract

This paper develops a contingent claim model of a risk-averse life insurer’s equity with various borrowing-firm credit risk features. The insurer’s lending function with various financial technology involvements creates the need to model equity as a capped/naked call option in insurer-borrowing firms. As a result, the insurer benefits from the capped-risk lending strategy yielding a higher interest margin. However, either the severe novel coronavirus (COVID-19) pandemic or the substantial risk aversion deteriorates policyholder protection. In addition, stringent insurer capital regulation reduces the insurer’s interest margin, thus increasing policyholder protection and contributing to insurance stability but discouraging insurer financial technology involvements.

Suggested Citation

  • Jyh-Horng Lin & Ching-Hui Chang & Shi Chen, 2023. "Risk-averse insurer capped-risk sensitive lending during the COVID-19 pandemic," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(8), pages 2344-2355, June.
    • Handle: RePEc:mes:emfitr:v:59:y:2023:i:8:p:2344-2355
    DOI: 10.1080/1540496X.2021.1974392
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