nep-ias New Economics Papers
on Insurance Economics
Issue of 2014‒07‒21
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice By Yogo, Motohiro; Koijen, Ralph S.J.; Van Nieuwerburgh, Stijn
  2. Deposit Insurance Database By Asli Demirgüç-Kunt; Edward J. Kane; Luc Laeven
  3. The Cost of Financial Frictions for Life Insurers By Koijen, Ralph S.J.; Yogo, Motohiro
  4. How Should Donors Respond to Resource Windfalls in Poor countries? From Aid to Insurance- Working Paper 372 By Anton Dobronogov, Alan Gelb, and Fernando Brant Saldanha
  5. Análisis de Flujos en el Mercado laboral Chileno By Gonzalo Castex; Roberto Gillmore

  1. By: Yogo, Motohiro (Federal Reserve Bank of Minneapolis); Koijen, Ralph S.J. (London Business School); Van Nieuwerburgh, Stijn (New York University)
    Abstract: We develop a pair of risk measures, health and mortality delta, for the universe of life and health insurance products. A life-cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products. We estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance, annuities including private pensions, and long-term care insurance in the Health and Retirement Study. For the median household aged 51 to 57, the lifetime welfare cost of market incompleteness and suboptimal choice is 3.2% of total wealth.
    Keywords: Annuities; Health insurance; Life-cycle model; Life insurance; Portfolio choice
    JEL: D14 D91 G11 I13
    Date: 2014–06–11
  2. By: Asli Demirgüç-Kunt; Edward J. Kane; Luc Laeven
    Abstract: This paper provides a comprehensive, global database of deposit insurance arrangements as of 2013. We extend our earlier dataset by including recent adopters of deposit insurance and information on the use of government guarantees on banks’ assets and liabilities, including during the recent global financial crisis. We also create a Safety Net Index capturing the generosity of the deposit insurance scheme and government guarantees on banks’ balance sheets. The data show that deposit insurance has become more widespread and more extensive in coverage since the global financial crisis, which also triggered a temporary increase in the government protection of non-deposit liabilities and bank assets. In most cases, these guarantees have since been formally removed but coverage of deposit insurance remains above pre-crisis levels, raising concerns about implicit coverage and moral hazard going forward.
    JEL: G01 G21 G28
    Date: 2014–07
  3. By: Koijen, Ralph S.J. (London Business School); Yogo, Motohiro (Federal Reserve Bank of Minneapolis)
    Abstract: During the financial crisis, life insurers sold long-term policies at deep discounts relative to actuarial value. The average markup was as low as −19 percent for annuities and −57 percent for life insurance. This extraordinary pricing behavior was due to financial and product market frictions, interacting with statutory reserve regulation that allowed life insurers to record far less than a dollar of reserve per dollar of future insurance liability. We identify the shadow cost of capital through exogenous variation in required reserves across different types of policies. The shadow cost was $0.96 per dollar of statutory capital for the average company in November 2008.
    Keywords: Annuities; Capital regulation; Financial crisis; Leverage; Life insurance
    JEL: G01 G22 G28
    Date: 2014–06–11
  4. By: Anton Dobronogov, Alan Gelb, and Fernando Brant Saldanha
    Abstract: Natural resources are being discovered in more countries, both rich and poor. Many of the new and aspiring resource exporters are low-income countries that are still receiving substantial levels of foreign aid. Resource discoveries open up enormous opportunities, but also expose producing countries to huge trade and fiscal shocks from volatile commodity markets if their exports are highly concentrated. A large literature on the “resource curse” shows that these are damaging unless countries manage to cushion the effects through countercyclical policy. It also shows that the countries least likely to do so successfully are those with weaker institutions, and these are most likely to remain as clients of the aid system. This paper considers the question of how donors should respond to their clients’ potential windfalls. It discusses several ways in which the focus and nature of foreign aid programs will need to change, including the level of financial assistance. The paper develops some ideas on how a donor like the International Development Association might structure its program of financial transfers to mitigate volatility. The paper outlines ways in which the International Development Association could use hedging instruments to vary disbursements while still working within a framework of country allocations that are not contingent on oil prices. Simulations suggest that the International Development Association could be structured to provide a larger degree of insurance if it is calibrated to hedge against large declines in resource prices. These suggestions are intended to complement other mechanisms, including self-insurance using Sovereign Wealth Funds (where possible) and the facilities of the International Monetary Fund.
    Keywords: countercyclical, foreign aid, hedging markets, low-income countries, macroeconomic stabilization, natural resources, volatility
    JEL: E63 F35 G23 Q33
    Date: 2014–07
  5. By: Gonzalo Castex; Roberto Gillmore
    Abstract: This paper analyzes the labor market dynamics in Chile using micro data from the unemployment insurance data base. Labor market flows between labor status, between geographical areas and economic sectors are calculated. It is found that a high percentage of workers change jobs without going through unemployment. The sectors of Construction, Entrepreneurial activities, Commerce and Agriculture generate 54% of job switching, creation and destruction dynamics. In addition, among those workers who change jobs, about 70% leave the district where they used to work. However, if the analysis is done not considering the metropolitan region, this percentage drops by half. Finally, the metropolitan region is where most workers migrate to, and where most jobs are created and destroyed
    Date: 2014–07

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