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Life insurer performance under the bailout of distressed asset purchases

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  • Xuelian Li
  • Jianming Dong
  • Jyh-Horng Lin

Abstract

The paper develops a structure-break contingent claim model to examine how government bailout affects a life insurer’s performance (policyholder protection and insurer survival). The distressed assets purchased by the government enhance the optimal insurer interest margin, and policyholder protection. Bailout as such helps the life insurer, implying a higher likelihood of survival in particular when a financial crisis deteriorates seriously, thereby contributing to the stability of the insurance system. In addition, we suggest that low participation of the profit-sharing policy increases insurer survival. This strategic participation effect becomes more significant when the economic state of structural break volatility is increased, and thus, enhancing insurer survival and solving financial problems.

Suggested Citation

  • Xuelian Li & Jianming Dong & Jyh-Horng Lin, 2020. "Life insurer performance under the bailout of distressed asset purchases," Applied Economics, Taylor & Francis Journals, vol. 52(19), pages 2063-2078, April.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:19:p:2063-2078
    DOI: 10.1080/00036846.2019.1682117
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