IDEAS home Printed from https://ideas.repec.org/a/bla/jrinsu/v90y2023i4p1027-1061.html
   My bibliography  Save this article

Regulatory capital and asset risk transfer

Author

Listed:
  • Kyeonghee Kim
  • J. Tyler Leverty
  • Joan T. Schmit

Abstract

We explore whether life insurers use a unique reinsurance arrangement to manage assets tied to their regulatory capital. Typical reinsurance allows insurers to reduce their regulatory capital by transferring liabilities (reserves), and the associated assets, to reinsurers. With modified coinsurance (ModCo), insurers maintain control of their liabilities and assets while transferring regulatory capital requirements to the reinsurer. Holding fixed an insurer's reported capital, we find that ModCo allows insurers to report higher risk‐based capital ratios. Insurers with ModCo are less likely to fire sale downgraded bonds. We also find suggestive evidence of regulatory arbitrage, as most ModCo is purchased from reinsurers in countries with low capital requirements or within the same insurance group.

Suggested Citation

  • Kyeonghee Kim & J. Tyler Leverty & Joan T. Schmit, 2023. "Regulatory capital and asset risk transfer," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(4), pages 1027-1061, December.
    • Handle: RePEc:bla:jrinsu:v:90:y:2023:i:4:p:1027-1061
    DOI: 10.1111/jori.12441
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jori.12441
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jori.12441?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
    ---><---

    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:90:y:2023:i:4:p:1027-1061. 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.

    We have no bibliographic references for this item. You can help adding them by using 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.