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External Financing in the Life Insurance Industry: Evidence From the Financial Crisis


  • Thomas R. Berry-Stölzle,

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    • Thomas R. Berry-Stölzle is at the Terry College of Business, University of Georgia, 206 Brooks Hall, Athens, GA 30602. Berry-Stölzle can be contacted via e-mail: Gregory P. Nini is at the LeBow College of Business, Gerri C. LeBow Hall 1129, 3141 Chestnut Street, Philadelphia, PA 19104. Sabine Wende is at the Faculty of Management, Economics and Social Sciences, University of Cologne, Albertus-Magnus-Platz, 50923 Cologne, Germany. The authors would like to thank participants of the 2013 AEA Annual Meeting, 2012 NBER Universities Research Conference, the 2012 Risk Theory Society Seminar, the 2012 ARIA Annual Meeting, the 2012 FMA Annual Meeting, and the Convergence, Interconnectedness, and Crisis: Insurance and Banking Conference at Temple University for helpful comments and suggestions. All remaining errors are our own. Thomas R. Berry-Stölzle gratefully acknowledges financial support from a Terry-Sanford research grant. Sabine Wende gratefully acknowledges financial support from the 2nd Female Professor Program of the University of Cologne and travel support from the German Academic Exchange Service.
  • Gregory P. Nini,

  • Sabine Wende


The financial crisis and subsequent recession generated sizable operating losses for life insurance companies, yet the consequences were far less significant than for other financial intermediaries. The ability to quickly generate new capital through external issuance and dividend reductions let life insurers maintain healthy levels of equity capital. We use this experience to examine the causes and consequences of external capital issuance by U.S. life insurance companies. We show that, in general, new capital is issued both to support the growth of new business and to replace capital depleted by operating losses. This second channel is particularly important during macroeconomic recessions. Notably, we do not find any evidence that insurers had difficulty generating new capital, unlike other financial service providers that required large amounts of public support. For life insurers, what changed following the financial crisis was the demand to raise external capital, but the supply of external capital appears to have remained constant.