The Effect of Regulatory versus Market Asset Risk on the Capital Structure of Life Insurers: A Structural Equation Modeling Approach
نویسندگان
چکیده
This is the first academic study of capital structure in the life insurance industry to compare the effects of two different measures of asset risk in a panel of risks. The first measure embodies a regulatory (actuarial) viewpoint. The second reflects volatility of market returns. We model capital as a function of one or the other asset risk, plus a product risk factor based on health insurance exposure. The methodology incorporates recent advances in structural equation modeling that allow factor-analytic components and autocorrelated errors within dynamic sets of simultaneous equations. In comparing the two runs, we find that regulatory asset risk is much more influential than product risk, which is much more influential than market asset risk.
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