Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 6, 2021 erstellt
Description:
To what extent do investors view life insurers as “too big to fail?” I first examine market reactions to a U.S. Treasury announcement that raised expectations about government backstops for the industry. I find that a subset of large life insurers benefited from significant protection against bankruptcy, with implied probabilities of a government rescue ranging from 21% to 37% at the one-year horizon. Next, I structurally estimate a model of a life insurance sector with emergency bailouts. The estimates imply that for the 2001-2020 period the investor expectation of the probability of a bailout is 9.1% for large insurers. Indicative of prominent time-variation, the standard deviation of these bailout probabilities is 10.3%. A counterfactual analysis reveals modest average levels of moral hazard in risk-taking practices. Structural estimates for small life insurers imply more limited support. Overall, the results are consistent with the presence of a significant and time-varying “too big to fail” subsidy for large life insurers