Past Events

10th CARF Seminar:The Cost of Financial Frictions for Life Insurers

CARF / The Norinchukin Bank Seminar

No.2 Seminar Room, 1F of Economics Research Annex (Kojima Hall),
The University of Tokyo
Speaker: Dr. Motohiro Yogo (Federal Reserve Bank of Minneapolis)

During the financial crisis, life insurers sold long-term policies at deep discounts relative to actuarial value. In January 2009, the average markup was -25 percent for 30-year term annuities as well as life annuities and -52 percent for universal life insurance. This extraordinary pricing behavior was a consequence of financial frictions and statutory reserve regulation that allowed life insurers to record far less than a dollar of reserve per dollar of future insurance liability. Using exogenous variation in required reserves across different types of policies, we identify the shadow cost of financial frictions for life insurers. The shadow cost was nearly $5 per dollar of excess reserve for the average insurance company in January 2009.

Motohiro Yogo is a monetary advisor at the Federal Reserve Bank of Minneapolis. He was formerly an assistant professor of finance at the Wharton School of the University of Pennsylvania and a visiting assistant professor of economics at Princeton University. He earned an A.B. from Princeton in 2000 and a Ph.D. from Harvard in 2004, both in economics.

His fields of expertise are financial economics and econometrics. His recent work is on the life-cycle demand for health and longevity products and the impact of financial and regulatory frictions on insurance prices. He has previously worked on understanding the relation between business cycles and asset prices; forecasting price movements in stock, bond, commodity, and currency markets; and developing a test for weak identification in the instrumental variables regression model.

His research has received financial support from the National Institute on Aging, the National Science Foundation, the U.S. Social Security Administration, and Netspar. His research has appeared in the leading economics and finance journals such as Journal of Political Economy, Journal of Finance, Journal of Financial Economics, and Review of Financial Studies. He was awarded the Zellner Thesis Award in Business and Economic Statistics by the American Statistical Association in 2005