Date of Award

Summer 7-10-2021

Degree Type


Degree Name

Doctor of Philosophy (PhD)


Risk Management and Insurance

First Advisor

Ajay Subramanian

Second Advisor

George Zanjani


This dissertation is devoted to studying the risk management of insurance companies. It focuses on risk management behaviors such as investment, portfolio management, and derivative use. The risk involved in the study includes the risk caused by adverse selection, investment risk, and interest rate risk. It also compares the risk-taking attitude among insurers with different ownership statuses.

The first chapter studies competitive equilibria of an insurance market with adverse selection where insurers' investments are risky. It characterizes the incentive-efficient allocations of the economy. Competitive equilibria are not incentive-efficient because of the externality imposed by agents' incentive constraints that cannot be completely internalized in the Walrasian economy. Specifically, the equilibrium allocations achieved in the market can only be ones with restricted subsidization although incentive-efficient allocations feature unrestricted subsidization when the proportion of low-risk insurees is large. Finally, it demonstrates incentive-efficient allocations in the new economy with investment risk can be successfully decentralized in the Walrasian market affiliated with consumption rights that internalize the externality imposed by agents' incentive constraints.

The second chapter studies duration-matching behavior by life insurers in response to interest rate movements. Previous literature finds evidence that the duration gap between assets and liabilities is negatively correlated to interest rates, which is interpreted as ex post duration adjustment. It further hypothesizes that value-maximizing life insurers have incentives to make pre-emptive matching in anticipation of future interest rates. It uses the term spread of the yield curve as the indicator of the expected change in interest rates and shows that U.S. life insurers actively shorten the durations of their asset portfolios reacting to an increasing in both the interest rate level and expected future interest rates proxized by the term spread. To identify the causal relation, it exploits the monetary policy shock associated with 2013 taper tantrum in the difference-in-differences analysis. Consistent with the hypotheses, there is a negative impact of the tape tantrum on the asset duration of highly exposed life insurers comparing with insurers with low interest rate risk exposure.

The last chapter is derived from the study about duration matching behaviors. It investigates the role that the ownership status of life insurers plays in the attitude of risk-taking. Mutual ownership is of interest because of the dramatic evolution of the mutual market and its large market share. Following previous studies of capital advantage in different ownership types, the paper suggests that mutual insurers are more conservative in taking interest rate risk relative to stock insurers. Evidence from the U.S. life insurance industry shows that U.S. life insurers maintain a smaller duration gap and react more intensively to interest rate risk. After considering different corporate structures, the argument remains consistent in that mutual corporations take less interest rate risk than two types of stock corporations, mutual holding corporations, and stock corporations.


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