Shadow Banking and Life Insurance Policyholder Protection

Chuen-Ping Chang; Shi Chen; Jyh-Jiuan Lin

Authors

Chuen-Ping Chang ✉️ Department of Public Finance and Taxation, National Kaohsiung University of Science and Technology, Kaohsiung, Taiwan
Shi Chen School of Economics, Southwestern University of Finance and Economics, Chengdu, China
Jyh-Jiuan Lin Department of Statistics, Tamkang University, New Taipei City, Taiwan

Abstract

This paper develops a life insurance liability valuation model that integrates the balance-sheet insurer loans with the shadow banking entrusted loans in a premature default risk environment. It is shown that the life insurance policyholder significantly benefits from the entrusted loan activities in a less likely premature default risk environment. The policyholder protection is increased in accord with a high guaranteed interest rate, particularly when the life insurance company has ample access to entrusted loans. The policyholder protection is also significantly increased by a high participation level when the life insurance company 'shrinks away' from accessing entrusted loans. Overall, the authors concluded that shadow banking entrusted loans help policyholder protection.(original abstract)