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Investment Returns and Yields to Holders of Insurance

  • Smith, Michael L
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    This article demonstrates how investment returns can affect yields to holders of insurance policies in a competitive market and empirically tests whether such effects are present. Data for U.S. stock property-liability insurers during 1950-82 are consistent with insurance yields reflecting returns from taxable bonds. Also, the article shows how the pre-1987 U.S. tax code creates an opportunity for arbitrage by insurers between the market for property-liability insurance and the market for tax-exempt securities. Tests for the effect of this arbitrage indicate that tax-exempt/taxable yield ratios for bond maturities lying near five and ten years also have affected yields to holders of insurance. Copyright 1989 by the University of Chicago.

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    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 62 (1989)
    Issue (Month): 1 (January)
    Pages: 81-98

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    Handle: RePEc:ucp:jnlbus:v:62:y:1989:i:1:p:81-98
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JB/

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