紀要論文

Preemptive Surrenders and Self-Fulfilling Life Insurance Crises

eng

09111247

https://doi.org/10.15002/00007860

25

49

62

2011-03

Version of Record

This paper examines the mechanisms behind the preemptive surrender of life insurance policies which resulted in the series of bankruptcies of life insurance companies during the "life insurance crisis" between 1997 and 2001 in Japan. In this paper, we construct coordina-tion games between policyholders in a situation where a life insurance company is likely to go bankrupt if many policyholders surrender their policies. We derive a unique equilibrium in a situation where policyholders are only able to obtain inaccurate information on the financial status of the life insurance company. We conduct a comparative statics study and results show that, with regard to the equilibri-um, there is an increased possibility that a life insurance company may be forced into bank-ruptcy when policyholders surrender their policies, even when the company’s financial status is good, in a situation where, one, policyholders become more risk averse, two, there is a decline in the level of accuracy of information on the financial status of the company, three, there is an increase in the refund that can be recovered with the surrender of a policy, and, four, there is a decrease in the liquidity of assets owned by the company. Furthermore, when there exist different types of policyholders in cases such as the co-existence of policyholders who are uncertainty-averse and policyholders who are highly risk-averse, there is a greater possibility that the life insurance company will go bankrupt as a result of the preemptive surrender of policies by policyholders. In addition, with regard to the injection of capital such as public funds into a life insurance company, the increase of capital injection up to a specific level will have the desirable effect of preventing a bankruptcy caused by the surrender of policies. However, an increase in the amount of capital injected beyond a certain level will produce the undesirable effect of postponing the disposition of excessive debts held by the life insurance company.

Article

AA10459262