Insurer capital, technology choices, and performance during a trade war

ABSTRACT

This paper develops a duopolistic contingent claim model to evaluate the equity values of life insurers during a trade war. Choosing advanced (technology-oriented) relative to backward (human capital-oriented) technology is crucial for insurance management. A result shows that holding more capital would enhance insurer survival. The enhancement becomes more significant when the trade war becomes more severe and when the technology chosen by the insurers is more backward. Capital, as such, contributes to insurance stability but discourages advanced technology development for insurers during the trade war.

KEYWORDS:

• Trade war
• technology choices
• capital
• insurer survival

JEL CLASSIFICATION:

• G22
• G33

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ See Appendix A for the specifications of Equations (3) and (4).:

² See Appendix B for the specification for Eq. (5).:

³ The condition $R{R}_j=R{R}_i$ holds since both are the security-market determined rate.

⁴ See Appendix D.

Additional information

Funding

This work is financially supported by the National Natural Science Foundation of China [Grant No.71603217]; and the Fundamental Research Funds for the Central Universities [Grant No. JBK2111003] (Shi Chen).