Asset Insulators. (22nd May 2020)

• Record Type: Journal Article
• Authors: Chodorow-Reich, Gabriel; Ghent, Andra; Haddad, Valentin
• Editors: Koijen, Ralph
• Is Part Of: Review of financial studies. Volume 34:Number 3(2021)
• Page Start: 1509
• Page End: 1539
• Publication Date: 2020-05-22
• Subjects: G14 -- G22 -- G32; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1093/rfs/hhaa061
• Languages: English
• ISSNs: 0893-9454

Abstract

Abstract: We construct a new data set tracking the daily value of life insurers' assets at the security level. Outside of the 2008–2009 crisis, a ${\$}$ 1 drop in the market value of assets reduces an insurer's market equity by ${\$}$ 0.10. During the ?nancial crisis, this pass-through rises to ${\$}$ 1. We explain this pattern by viewing insurance companies as asset insulators, institutions with stable, long-term liabilities that can ride out transitory dislocations in market prices. Illustrating the macroeconomic importance of insulation, insurers' market equity declined by ${\$}$ 50 billion less than the duration-adjusted value of their securities during the crisis.