ABSTRACT I identify the effects of financial constraints on firms' product pricing decisions, using insurance groups containing both life and property & casualty (P&C) divisions. Following P&C divisions' losses, life divisions change prices in a manner that can generate more immediate financial resources: premiums fall (rise) for life policies that immediately increase (decrease) insurers' financial resources. Premiums change more in groups that are more constrained. Life divisions increase transfers to P&C divisions, suggesting P&C divisions' shocks are transmitted to life divisions. Results hold when instrumenting for P&C divisions' losses with exposure to unusual weather damages, implying that the effects are causal.

We examine the variable annuity market to study conflicts of interest and the effect of fiduciary duty in brokerage markets. Insurers typically pay brokers higher commissions for selling more expensive annuities. Our results indicate that sales are four times as sensitive to brokers’ interests as to investors’. To limit conflicts of interest, the Department of Labor proposed a rule in 2016 holding brokers to a fiduciary standard. We find that after the proposal, sales of high-expense products fell by 52% as sales became more sensitive to expenses. Based on our structural estimates, investor welfare improved overall. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.