The article investigates an insurer’s green finance toward sustainability by explicitly capping borrowing-firm
credit risk. The borrowing firms participate in the cap-and-trade mechanism and conduct green technology
choices in a dragon-king environment due to confluent climate changes. The policy surrender incurs in the insurer’s
asset-liability matching management. The model can explore the effects of the borrowing-firm green
trades and green technology choices on the insurer’s performance. We show that the dragon-king impact and the
policy surrender reduce the optimal guaranteed rate of the life insurance policies and policyholder protection.
The stringent regulatory cap of the cap-and-trade mechanism decreases the insurer’s profits and hurts policyholders.
Green technology employed by the high‑carbon-emission borrowing firm reduces the insurer’s profits;
however, it helps protect policyholders, contributing to insurance stability. One implication is that the government
might improve environmental sustainability directly through the borrowing-firm production rather than
from the fund-providing perspective.
