This paper develops a contingent claim model of a risk-averse life insurer’s
equity with various borrowing-firm credit risk features. The insurer’s lending
function with various financial technology involvements creates the need to
model equity as a capped/naked call option in insurer-borrowing firms. As
a result, the insurer benefits from the capped-risk lending strategy yielding
a higher interest margin. However, either the severe novel coronavirus
(COVID-19) pandemic or the substantial risk aversion deteriorates policyholder
protection. In addition, stringent insurer capital regulation reduces
the insurer’s interest margin, thus increasing policyholder protection and
contributing to insurance stability but discouraging insurer financial technology
involvements.