Life Insurance and Annuity Pricing during the Financial Crisis, Revisited

Tuesday, 2 April 2024

2:30 PM – 4:00 PM

Venue: Gaia Lecture Theatre 5 (#ABS-02-LT5)

Chairperson: Associate Prof Shinichi Kamiya

Abstract

We reexamine insurance and annuity pricing during the 2008 financial crisis. We find that the existing narrative—of insurers selling policies at significant economic loss to gain statutory accounting benefits—is false. Instead, we show that the pricing was set to produce unusually high rates of return on capital and thus was consistent with standard theories of pricing in the presence of financial frictions. Moreover, we show that experience in 2008 was not extraordinary but 1) mirrored other episodes where corporate borrowing rates rose quickly, and 2) produced, as in earlier and subsequent episodes of bond market stress, an inversion of the expected relationship between price and default risk. 

About the Speaker

George Zanjani is Professor of Finance and the holder of the Frank Park Samford Chair of Insurance at the University of Alabama.  Previous employment includes stints in the Risk Management and Insurance Department of Georgia State University, the Capital Markets Function of the Federal Reserve Bank of New York, and the Actuarial Department of Fireman’s Fund Insurance Companies.  He holds a Ph.D. in Economics from the University of Chicago and has published various works, including articles in the American Economic Review, Journal of Financial Economics, Management Science, and a forthcoming chapter in the Handbook of Insurance on insurance pricing.