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Borrower capital, shadow insurance, and life insurer performance

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  • Jyh-Horng Lin
  • Fu-Wei Huang
  • Chuen-Ping Chang

Abstract

The paper develops a ‘capped’ call option model by calibrating Briys and de Varenne (1994) with integrating Dermine and Lajeri (2001) that the borrowing-firm credit risk is introduced to the lending function of the insurer. Results show that shadow banking entrusted loans enhance policyholder protection and help the insurer from the standpoint of survival at the cost of insurer profitability. We also suggest that shadow insurance and lending to high-quality borrowing firms captured by low leverage might increase policyholder protection and insurer survival, thereby contributing to insurance stability.

Suggested Citation

  • Jyh-Horng Lin & Fu-Wei Huang & Chuen-Ping Chang, 2021. "Borrower capital, shadow insurance, and life insurer performance," Applied Economics Letters, Taylor & Francis Journals, vol. 28(7), pages 531-534, April.
    • Handle: RePEc:taf:apeclt:v:28:y:2021:i:7:p:531-534
    DOI: 10.1080/13504851.2020.1761940
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