SCOR-TSE Finance & Insurance

The aim of this chair was to develop academic insurance economics research that could be relevant to (re)insurance researchers, and more generally to our understanding of the evolution of the (re)insurance industry.

From 2015 onwards, the “Finance & Insurance” Chair supported theoretical and applied research at TSE on the regulation of insurance markets and risk management, combining methodologies from financial economics, industrial organization and econometrics.

The chair was initially headed by Augustin Landier (2009-2017) and then by Jean-Charles Rochet (2017-2020), with the assistance of Andrea Attar and Thomas Mariotti.

It focused on the following areas:

• Risk management and investment optimization in alternative finance; ex-ante detection and management of rare event risk (tail risk).
• Financial and systemic risk management. The role of the regulator in the production of information and the standardization of contracts; the role and optimization of government guarantees.
• Financial markets and the real economy. Financing of innovation and entrepreneurship.
• Long-term investment; responsible investment.
• Corporate governance, shareholder control; executive incentives and compensation.
• Articulation of strategic allocation / tactical asset allocation depending on various factors (risk appetite, capital protection, optimization of remuneration), underpinned by the following question: is strategic allocation a reference point by which to define actual allocation, or the structure to be respected in most cases?
• To what extent should asset-liability matching be respected in an uncertain universe that will probably be subject to liquidity constraints?
• Determinants of risk premiums, ambiguity premiums and liquidity premiums on financial assets.

Research and associated publications:
 

1. Catastrophe Bonds: develop an equilibrium framework to test the pricing of catastrophe bonds. This topic was addressed by Milo Bianchi and Augustin Landier in their paper “Obligations catastrophes : comment les marchés financiers évaluent-ils les facteurs de risques naturels ?” published in Revue d’Economie Financière 
    
2. Insurance rate risk: analyze the extent to which the intermediaries’ balance sheet is affected by external shocks on interest rates. The topic was addressed by Augustin Landier and co-authors in their papers: “Vulnerable Banks”, Journal of Financial Economics and “Banks Exposure to Interest Rate Risk and the Transmission of Monetary Policy”, Journal of Monetary Economics
    
3. Behavioral finance: evaluate the implications of recent advances in behavioral economics on competition between insurance firms and, broadly, financial intermediaries. The topic was addressed by Augustin Landier and co-authors in their papers: “The Excess Returns of ‘Quality’ Stocks: A Behavioral Anomaly”, Journal of Investment Strategies and “Sticky Expectations and the Profitability Anomaly”, Journal of Finance
    
4. Testable predictions of non-exclusive insurance markets: develop an equilibrium framework to test the pricing of non-exclusive insurance contracts. This topic was addressed by Andrea Attar, Thomas Mariotti and François Salanié in their papers: “Concurrence non-exclusive et sélection adverse”, Revue Economique; “On competitive nonlinear pricing”, Theoretical Economics; “Entry-Proofness and Discriminatory Pricing under Adverse Selection”, TSE Working Paper, “Non-Exclusive Competition under Adverse Selection", mimeo.
    
5. Side trading in insurance markets: efficiency and regulation: develop the normative analysis of non-exclusive insurance markets. This topic was addressed by Andrea Attar, Thomas Mariotti and François Salanié in their papers: “The Social Costs of Side Trading”, Economic Journal; “Regulating Insurance Markets: Multiple Contracting and Adverse Selection”, TSE Working Paper.
    
6. Multiple investors, financial covenants and market outcomes: analyze the extent to which counterparty externalities on financial markets can be internalized by letting agents and design appropriate financial contracts, possibly including exclusivity clauses. This topic was addressed by Andrea Attar and co-authors in their papers: “Multiple Lenders, Strategic Default and Covenants”, American Economic Journal; “Contracting Sequentially with Multiple Lenders: The Role of Menus”, Journal of Money, Credit, and Banking; “On Competing Mechanisms under Exclusive Competition”, Games and Economic Behavior; “Private Communication in Competing Mechanism Games”, Journal of Economic Theory
    
7. The dynamic of financial intermediaries’ capital: determine the impact of cyclical variations in the equity capital of financial intermediaries. This topic was addressed by Jean-Charles Rochet and co-authors in their papers: “Financial Intermediation, Capital Accumulation and Crisis Recovery”, TSE Working Paper; “Optimal Dividend Policies with Random Profitability”, Mathematical Finance.
    

Click here to access the SCOR-TSE "Finance & Insurance" Chair 2019 Activity Report.