Papers

How Do Financial Constraints Affect Product Pricing?
Evidence from Weather and Life Insurance Premiums
Journal of Finance, 2022 (SSRN)

Life insurance premiums

I identify the effects of financial constraints on firms’ product pricing decisions, using insurance groups containing both life and property & casualty (P&C) divisions. Following P&C divisions’ losses, life divisions change prices in a manner that can generate more immediate financial resources: premiums fall (rise) for life policies that immediately increase (decrease) insurers’ financial resources. Premiums change more in groups that are more constrained. Life divisions increase transfers to P&C divisions, suggesting P&C divisions’ shocks are transmitted to life divisions. Results hold when instrumenting for P&C divisions' losses with exposure to unusual weather damages, implying that the effects are causal.

The Role of Financial Conditions in Portfolio Choices: The Case of Insurers
(with Michael Weisbach)
Journal of Financial Economics, 2021 (SSRN)

Many institutional investors depend on the returns they generate to fund their operations and liabilities. How do these investors’ financial conditions affect the management of their portfolios? We address this issue using the insurance industry because insurers are large investors for which detailed portfolio data are available, and can face financial shocks from exogenous weather events that help us establish causality. Among corporate bonds, for which we can control for regulatory treatment, results suggest that when Property & Casualty (P&C) insurers become more constrained due to operating losses, they shift towards safer bonds. The effect of losses on allocations is likely to be causal since it holds when instrumenting for losses with weather shocks. The change in allocations following losses is larger for smaller or worse-rated insurers and during the financial crisis, suggesting that the shift toward safer securities is driven by concerns about financial flexibility. The results highlight the importance of financial conditions in institutional investors’ portfolio decisions.

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Conflicting Interests and the Effect of Fiduciary Duty
—Evidence from Variable Annuities
(with Mark Egan and Johnny Tang) (SSRN)
Accepted, Review of Financial Studies 
cited by the US Senate, featured in NYT

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We examine the market for variable annuities, a popular retirement product with over $2.2 trillion in assets. Insurers pay brokers commissions for selling annuities, and brokers typically earn higher commissions for selling more expensive annuities. Our results indicate that sales are five times as sensitive to brokers' financial interests as to investors'. To limit conflicts of interest, the Department of Labor proposed a rule in 2016 holding brokers to a fiduciary standard. We find that after the proposal, sales of high-expense products fell by 52% as sales became more sensitive to expenses. Based on our structural estimates, investor welfare improved overall. 

Select Work In Progress

–  “Health Insurance Costs, Upskilling, and Technology” (click here for slides) with Janet Gao, Lawrence Schmidt, Cristina Tello-Trillo

– "Insurance Premiums and Home Prices" with Ammon Lam and Ryan Lewis

– "Investors' Reaching for Yield and Firm Borrowing through CLOs" with Abhishek Bhardwaj and Saptarshi Mukherjee

–  “When Your Health is Not My Business—Risk Management and Moral Hazard in Employer Health Insurance” with Yiwen Lu

– "Predictable Uncertainty and Loan Maturities"

–  “Real Effects of Financial Shocks––Evidence from Opioid Prescriptions” with Isil Erel, Pengfei Ma