An empirical study of contagion effects and shifts in systematic risk in the life insurance industry

This study examines whether there are contagion effects and shifts in systematic risk for life insurance industry co-members regarding information releases and subsequent failures of First Executive Corporation, First Capital Holdings Corporation, Monarch Capital Corporation, and Mutual Benefit Life Insurance Company. During the Spring and Summer of 1991, each of these companies either asked for voluntary protection or was involuntarily taken over by state insurance regulators.; The capital market response regarding financial instability and subsequent failures of the four subject life insurers is analyzed for three portfolios of life insurance industry co-members. The three portfolios consist of New York and American Stock Exchange life insurance companies, National Association of Security Dealers' Automated Quotation System life insurance companies, and New York and American Stock Exchange multi-line insurance companies.; A dummy variable technique is used to calculate unexpected security returns for specified event days. The event days correspond to the information releases for the four failed life insurers.; The results support the general conclusion that contagion effects and shifts in systematic risk were not found for the three portfolios of life insurance industry co-members.