Economists are still trying to understand how, and why, issuers of life and annuity benefits guarantees might break in a crisis.
Gabriel Chodorow-Reich, an economist at Harvard, and two colleagues, talk about life insurer failure problems in a new working paper posted earlier this month behind a paywall, on the website of the National Bureau of Economic Research.
The economists compared data from normal times with data from the “Great Recession” that hit the world in 2008 and 2009.
Chodorow-Reich and his colleagues found that life insurers were great insulators of asset value in normal market rainshowers.
But, when the market storms rolled in, life insurers started to leak.
The Working Paper
A “working paper” is a study that has not gone through a full peer review process and may not be ready for formal publication.
Chodorow-Reich and his colleagues have been working on the new asset insulator paper for several years. They posted an earleir version online in 2016.
A free abstract of the new version is available to the public here.
Few life or annuity prospects spend much time reading economics working papers.
But, because economic papers about life insurance and annuities are less common than papers about banks and stocks, any new paper about life insurance and annuities could make a splash.
A widely read paper could affect life insurance and annuity market rules, and life insurers’ access to investor capital, by shaping the views of rating analysts, and of analysts at federal agencies and congressional committees.
What the Economists Found
Life insurers invest heavily in corporate bonds.