The paper develops a contingent claim model to evaluate the equity of a life insurer when the
insurer could act as a protection buyer or a protection seller in a credit swap transaction market.
The investment market and the life insurance market faced by the insurer are assumed to be
imperfectly competitive in order to capture the insurer’s asset-leading or liability-reducing spread
behaviour. This paper complements the insurance literature by analysing how the effects of credit
swap transactions on insurer spread behaviour and policyholder protection, and how they might
differ across various degrees of capital regulation, premature default risk, and profit-sharing
participation. Our findings offer some useful insights for achieving the stability of the insurance
system.