An authoritative and comprehensive graduate textbook on the modern insurance sector The traditional role of insurers is to insure idiosyncratic risk through products such as life annuities, life insurance, and health insurance. With the decline of private defined benefit plans and government pension plans around the world, insurers are increasingly taking on the role of insuring market risk through minimum return guarantees. Insurers also use more complex capital management tools such as derivatives, off-balance-sheet reinsurance, and securities lending. Financial Economics of Insurance provides a unified framework to study the impact of financial and regulatory frictions as well as imperfect competition on all insurer decisions. The book covers all facets of the modern insurance sector, guiding readers through its complexities with empirical facts, institutional details, and quantitative modeling. An up-to-date textbook for graduate students in economics, finance, and insurance Covers a broad range of topics, including insurance pricing, contract design, reinsurance, portfolio choice, and risk management Provides promising new directions for future research Can be taught in courses on asset pricing, corporate finance, industrial organization, and public economics An invaluable resource for policymakers seeking an empirical and institutional account of today's insurance sector

Despite the importance of insurance in enabling individual and collective social, economic, and financial activities, discussions about the macro-economic role and risks of insurance markets are surprisingly limited. The core motivation for publishing this book is to bring together academics, regulators, and industry experts to provide a multifaceted array of research and perspectives on insurance, its role and functioning, and the potential systemic risk it could create. The first part discusses the macro-economic role of insurance and how insurance is different from banking and general finance. Understanding the differences between the balance sheets of insurers and other financial intermediaries is essential to understand the potential differences in risk nature and differences in optimal regulation. The second part of the book focuses on the risks of the insurance sector and the potential for systemic risk. The various chapters discuss the risks both on the asset and liability sides of insurers' balance sheets. The third part of the book covers the impact of regulation on insurance companies. Existing regulation is often complex and has a large impact on insurance companies' decision-making and functioning. The chapters also illustrate the unintended consequences of various forms of regulation. The book concludes with a summary of a survey that has been conducted in collaboration with McKinsey, where insurance executives have been asked about the risks and regulation in the insurance sector. The survey provides guidance for future research on insurance markets.