Finance/FRIC Seminar with Ralph Koijen, Booth School of Business, University of Chicago

The Department of Finance and Center for Financial Frictions (FRIC) are proud to announce the upcoming seminar with Ralph Koijen, Booth School of Business, University of Chicago

Ralph Koijen will be presenting:

The Cost of Financial Frictions for Life Insurers

Abstract

During the financial crisis, life insurers sold long-term insurance policies at deep discounts relative to actuarial value. In January 2009, the average markup was −25 percent for 30-year term annuities as well as life annuities and −52 percent for universal life insurance. This extraordinary pricing behavior was a consequence of financial frictions and statutory reserve regulation that allowed life insurers to record far less than a dollar of reserve per dollar of future insurance liability. Using exogenous variation in required reserves across different types of policies, we identify the shadow cost of financial frictions for life insurers. The shadow cost was nearly $5 per dollar of excess reserve for the average insurance company in January 2009. (JEL G01, G22, G28)

Authors

Ralph S. J. Koijen, University of Chicago, National Bureau of Economic Research, and Netspar-Tilburg University & Motohiro Yogo, Federal Reserve Bank of Minneapolis

For more information about Ralph Koijen, please click here