NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Shadow Insurance

Ralph S.J. Koijen, Motohiro Yogo

NBER Working Paper No. 19568
Issued in October 2013, Revised in May 2016
NBER Program(s):   AP   CF   PE

Life insurers use reinsurance to move liabilities from regulated and rated companies that sell policies to shadow reinsurers, which are less regulated and unrated off-balance-sheet entities within the same insurance group. U.S. life insurance and annuity liabilities ceded to shadow reinsurers grew from $11 billion in 2002 to $364 billion in 2012. Life insurers using shadow insurance, which capture half of the market share, ceded 25 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. By relaxing capital requirements, shadow insurance could reduce the marginal cost of issuing policies and thereby improve retail market efficiency. However, shadow insurance could also reduce risk-based capital and increase expected loss for the industry. We model and quantify these effects based on publicly available data and plausible assumptions.

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Document Object Identifier (DOI): 10.3386/w19568

Published: Ralph S. J. Koijen & Motohiro Yogo, 2016. "Shadow Insurance," Econometrica, Econometric Society, vol. 84, pages 1265-1287, 05. citation courtesy of

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