IDEAS home Printed from https://ideas.repec.org/a/bla/jrinsu/v87y2020i3p627-664.html
   My bibliography  Save this article

Does Having an Affiliated Bank Improve Life Insurer Performance in a Turbulent Market?

Author

Listed:
  • Chia‐Chun Chiang

Abstract

I find that life insurers with bank affiliates had higher premium growth rates than did other life insurers in 2008. The higher growth is derived mainly from annuity products (deposit‐type insurance products), which are often viewed as substitutes for bank certificates of deposit (CDs). The growth effect is consistent with cross‐selling between affiliated banks and affiliated life insurers. The spread between the guaranteed rates on annuity products and CDs in financial conglomerates widened in 2008, consistent with headquarters differentiating prices to move customers within the same group. In addition, the premium growth effect in 2008 is stronger for life insurers that suffered larger balance sheet shocks, as measured by the change in the risk‐based capital (RBC) ratio. The results support that headquarters used internal markets to reallocate resources to weaker divisions.

Suggested Citation

  • Chia‐Chun Chiang, 2020. "Does Having an Affiliated Bank Improve Life Insurer Performance in a Turbulent Market?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(3), pages 627-664, September.
    • Handle: RePEc:bla:jrinsu:v:87:y:2020:i:3:p:627-664
    DOI: 10.1111/jori.12286
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jori.12286
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jori.12286?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Duchin, Ran & Sosyura, Denis, 2014. "Safer ratios, riskier portfolios: Banks׳ response to government aid," Journal of Financial Economics, Elsevier, vol. 113(1), pages 1-28.
    2. Geoffrey Tate & Liu Yang, 2015. "The Bright Side of Corporate Diversification: Evidence from Internal Labor Markets," The Review of Financial Studies, Society for Financial Studies, vol. 28(8), pages 2203-2249.
    3. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
    4. Dmytro Holod & Joe Peek, 2010. "Capital Constraints, Asymmetric Information, and Internal Capital Markets in Banking: New Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 879-906, August.
    5. Murillo Campello, 2002. "Internal Capital Markets in Financial Conglomerates: Evidence from Small Bank Responses to Monetary Policy," Journal of Finance, American Finance Association, vol. 57(6), pages 2773-2805, December.
    6. David H. Autor, 2003. "Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 1-42, January.
    7. Anginer, Deniz & Demirguc-Kunt, Asli & Huizinga, Harry & Ma, Kebin, 2013. "How does corporate governance affect bank capitalization strategies ?," Policy Research Working Paper Series 6636, The World Bank.
    8. Weiyu Kuo & Chenghsien Tsai & Wei‐Kuang Chen, 2003. "An Empirical Study on the Lapse Rate: The Cointegration Approach," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(3), pages 489-508, September.
    9. Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
    10. Berger, Allen N. & Demsetz, Rebecca S. & Strahan, Philip E., 1999. "The consolidation of the financial services industry: Causes, consequences, and implications for the future," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 135-194, February.
    11. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
    12. Markus Glaser & Florencio Lopez-De-Silanes & Zacharias Sautner, 2013. "Opening the Black Box: Internal Capital Markets and Managerial Power," Journal of Finance, American Finance Association, vol. 68(4), pages 1577-1631, August.
    13. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
    14. Gonulal, Serap O. & Goulder, Nick & Lester, Rodney, 2012. "Bancassurance -- a valuable tool for developing insurance in emerging markets," Policy Research Working Paper Series 6196, The World Bank.
    15. Allen Berger & Rima Turk-Ariss, 2015. "Do Depositors Discipline Banks and Did Government Actions During the Recent Crisis Reduce this Discipline? An International Perspective," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(2), pages 103-126, October.
    16. Zhao, Tianshu & Matthews, Kent & Murinde, Victor, 2013. "Cross-selling, switching costs and imperfect competition in British banks," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5452-5462.
    17. Jie Gan, 2007. "The Real Effects of Asset Market Bubbles: Loan- and Firm-Level Evidence of a Lending Channel," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1941-1973, November.
    18. Epermanis, Karen & Harrington, Scott E., 2006. "Market Discipline in Property/Casualty Insurance: Evidence from Premium Growth Surrounding Changes in Financial Strength Ratings," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1515-1544, September.
    19. Evgeny Lyandres, 2006. "Capital Structure and Interaction among Firms in Output Markets: Theory and Evidence," The Journal of Business, University of Chicago Press, vol. 79(5), pages 2381-2422, September.
    20. J. Cummins & Neil Doherty, 2002. "Capitalization of the Property-Liability Insurance Industry: Overview," Journal of Financial Services Research, Springer;Western Finance Association, vol. 21(1), pages 5-14, February.
    21. 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.
    22. Stein, Jeremy C, 1997. "Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-133, March.
    23. Lawrence S. Powell & David W. Sommer & David L. Eckles, 2008. "The Role of Internal Capital Markets in Financial Intermediaries: Evidence From Insurer Groups," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(2), pages 439-461, June.
    24. Kenneth A. Froot, 2007. "Risk Management, Capital Budgeting, and Capital Structure Policy for Insurers and Reinsurers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(2), pages 273-299, June.
    25. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    26. Thomas R. Berry-Stölzle & Gregory P. Nini & Sabine Wende, 2014. "External Financing in the Life Insurance Industry: Evidence From the Financial Crisis," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 81(3), pages 529-562, September.
    27. Cassandra R. Cole & Stephen G. Fier & James M. Carson & Demetra Andrews, 2015. "The Impact of Insurer Name Changes on The Demand for Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 82(1), pages 173-204, March.
    28. A. Colin Cameron & Douglas L. Miller, 2015. "A Practitioner’s Guide to Cluster-Robust Inference," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 317-372.
    29. Berger, Allen N. & Cummins, J. David & Weiss, Mary A. & Zi, Hongmin, 2000. "Conglomeration versus Strategic Focus: Evidence from the Insurance Industry," Journal of Financial Intermediation, Elsevier, vol. 9(4), pages 323-362, October.
    30. Byeongyong Paul Choi, 2010. "The U.S. Property and Liability Insurance Industry: Firm Growth, Size, and Age," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 13(2), pages 207-224, September.
    31. Lewellen, Wilbur G, 1971. "A Pure Financial Rationale for the Conglomerate Merger," Journal of Finance, American Finance Association, vol. 26(2), pages 521-537, May.
    32. João A. C. Santos, 2011. "Bank Corporate Loan Pricing Following the Subprime Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1916-1943.
    33. Carow, Kenneth A., 2001. "Citicorp-Travelers Group merger: Challenging barriers between banking and insurance," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1553-1571, August.
    34. Teece, David J., 1980. "Economies of scope and the scope of the enterprise," Journal of Economic Behavior & Organization, Elsevier, vol. 1(3), pages 223-247, September.
    35. Gallo, John G. & Apilado, Vincent P. & Kolari, James W., 1996. "Commercial bank mutual fund activities: Implications for bank risk and profitability," Journal of Banking & Finance, Elsevier, vol. 20(10), pages 1775-1791, December.
    36. Matthew T. Billett, 2003. "Cross-Subsidies, External Financing Constraints, and the Contribution of the Internal Capital Market to Firm Value," The Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1167-1201.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stephen G. Fier & Andre P. Liebenberg, 2023. "Do insurers use internal capital markets to manage regulatory scrutiny risk?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(4), pages 861-897, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stefan Erdorf & Thomas Hartmann-Wendels & Nicolas Heinrichs & Michael Matz, 2013. "Corporate diversification and firm value: a survey of recent literature," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(2), pages 187-215, June.
    2. Berger, Allen N. & El Ghoul, Sadok & Guedhami, Omrane & Roman, Raluca A., 2022. "Geographic deregulation and banks’ cost of equity capital," Journal of International Money and Finance, Elsevier, vol. 120(C).
    3. Jeungbo Shim, 2011. "Mergers & Acquisitions, Diversification and Performance in the U.S. Property-Liability Insurance Industry," Journal of Financial Services Research, Springer;Western Finance Association, vol. 39(3), pages 119-144, June.
    4. Khan, Abu & Hassan, M. Kabir & Maroney, Neal & Boujlil, Rhada & Ozkan, Bora, 2020. "Efficiency, diversification, and performance of US banks," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 101-117.
    5. Curi, Claudia & Murgia, Maurizio, 2018. "Divestitures and the financial conglomerate excess value," Journal of Financial Stability, Elsevier, vol. 36(C), pages 187-207.
    6. Kim, Sehoon, 2020. "Disappearing Discounts: Hedge Fund Activism in Conglomerates," MPRA Paper 100876, University Library of Munich, Germany.
    7. Tarun Mukherjee & Elisabeta Pana, 2018. "The distribution of the Capital Purchase Program funds: Evidence from bank internal capital markets," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 27(4), pages 125-143, November.
    8. Yan, An & Yang, Zaihui & Jiao, Jie, 2010. "Conglomerate investment under various capital market conditions," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 103-115, January.
    9. Thomas R. Berry-Stölzle & Robert E. Hoyt & Sabine Wende, 2013. "Capital Market Development, Competition, Property Rights, and the Value of Insurer Product-Line Diversification: A Cross-Country Analysis," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(2), pages 423-459, June.
    10. Li, Xinyu & Wang, Huacheng & Li, Rong, 2023. "A hidden channel of “blood transfusion”: Internal capital market subsidies and zombie firms," The British Accounting Review, Elsevier, vol. 55(6).
    11. Paola Brighi & Valeria Venturelli, 2013. "The Effect Of Revenue And Geographic Diversification On Bank Performance," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 13103, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    12. Stephen G. Fier & Andre P. Liebenberg, 2023. "Do insurers use internal capital markets to manage regulatory scrutiny risk?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(4), pages 861-897, December.
    13. Paola Brighi & Valeria Venturelli, 2013. "The Effect Of Revenue And Geographic Diversification On Bank Performance," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0043, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    14. Bui, Dien Giau & Chen, Yan-Shing & Hsu, Hsing-Hua & Lin, Chih-Yung, 2020. "Labor unions and bank risk culture: evidence from the financial crisis," Journal of Financial Stability, Elsevier, vol. 51(C).
    15. Shan Ge, 2022. "How Do Financial Constraints Affect Product Pricing? Evidence from Weather and Life Insurance Premiums," Journal of Finance, American Finance Association, vol. 77(1), pages 449-503, February.
    16. Akter, Aysha & Khalifa, Mariem & Sualihu, Mohammed Aminu, 2025. "Diversified firms and corporate labor policy: The role of managerial equity incentives," International Review of Economics & Finance, Elsevier, vol. 98(C).
    17. repec:cgr:cgsser:03-01 is not listed on IDEAS
    18. Payam Hanafizadeh & Seyedali Marjaie, 2020. "Trends and turning points of banking: a timespan view," Review of Managerial Science, Springer, vol. 14(6), pages 1183-1219, December.
    19. Chen, Wei-Da & Chen, Yehning & Huang, Shu-Chun, 2021. "Liquidity risk and bank performance during financial crises," Journal of Financial Stability, Elsevier, vol. 56(C).
    20. Chakraborty, Indraneel & Goldstein, Itay & MacKinlay, Andrew, 2020. "Monetary stimulus and bank lending," Journal of Financial Economics, Elsevier, vol. 136(1), pages 189-218.
    21. Cummins, J. David & Weiss, Mary A. & Xie, Xiaoying & Zi, Hongmin, 2010. "Economies of scope in financial services: A DEA efficiency analysis of the US insurance industry," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1525-1539, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jrinsu:v:87:y:2020:i:3:p:627-664. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/ariaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.