Publication: The fluctuations of insurers’ risk appetite
The fluctuations of insurers’ risk appetite
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Luciano, E., & Rochet, J.-C. (2022). The fluctuations of insurers’ risk appetite. Journal of Economic Dynamics and Control, 144, 104543. https://doi.org/10.1016/j.jedc.2022.104543
Abstract
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The risk appetite of insurance companies fluctuates over time in a quasi cyclical fashion. When their capitalization is high (low), companies choose portfolios with a high (small) share of risky assets. We show that this phenomenon has the same source as the underwriting cycle, namely recapitalization costs. We build a dynamic stochastic general equilibrium model of the insurance sector where financial frictions prevent companies from maintaining a target leverage. Portfolio decisions of insurers fluctuate with their aggregate capital
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- Luciano, Elisa
- Rochet, Jean-Charles
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Luciano, E., & Rochet, J.-C. (2022). The fluctuations of insurers’ risk appetite. Journal of Economic Dynamics and Control, 144, 104543. https://doi.org/10.1016/j.jedc.2022.104543
