Peer Preference and Asset-Liability Management in InsurTech Market

Abstract

Technology advances have enhanced competition in insurance industry. This paper investigates a class of dynamic asset and liability management(ALM) game among mean-variance insurers with relative log return performance. We obtain the unique explicit time-consistent equilibrium ALM strategies for both the finite non-zero-sum game and mean field game, respectively. The results show that competition leads the increases of insurers’ risky asset investment and the insurance liability. The equilibrium solution implies that “social util- ity”(relative concerns) leads to “social learning”(herd effect) in the complete information market. In particular, the peer relative concern can induce preference interaction. Finally, we find the Granger causal relationship between industry competition and herd behavior in the empirical data and conduct sensitivity analysis of the competition outcome with respect to the estimated risk parameters.