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During the financial crisis, life insurers sold long-term policies at deep discounts relative to actuarial value. In December 2008, the average markup was −19 percent for life annuities and −57 percent for universal life insurance. This extraordinary pricing behavior was a consequence of financial frictions and statutory reserve regulation that allowed life insurers to record far less than a dollar of reserve per dollar of future insurance liability. We identify the shadow cost of financialdoi:10.2139/ssrn.2031993 fatcat:zkistmp65vckbf3hkz7kudfeei