What's the value of a TBTF guranty? Evidence from the G-SII designation for insurance companies

We document average abnormal stock returns of 14% for international insurance firms designated as Global Systemically Important Insurers (G-SII). These gains are associated with a fall in average default probability of 15.6%, and statistically weak and economically marginal increases in expected asset risk. Over the same event window, identical measures for other large insurance firms show no significant changes in equity returns or implied asset risk, but an increase in default probability of 27%. These results suggest that G-SII investors still perceive a net gain from TBTF protection, despite new compliance requirements and costs. Our evidence also suggests that these gains are driven primarily from reductions in default probability, as results are consistent with investor expectations that the new regulatory regime will limit moral hazard effects from the guaranty.