Why do life insurers hold sin bonds? Evidence from investment delegation

In recent years, life insurers have increased their exposure to socially controversial (sin) bonds from the alcohol, tobacco, and gaming sectors, which contradicts the social norm constraints commonly associated with such institutional investors. We show empirically that insurers’ investment delegation is associated with a reduced adherence to social norms, evidenced by their investment allocations. We find that insurers who delegate investment decisions to advisors are both more likely to invest and invest higher amounts in sin bonds. The effect is more pronounced when the advisors are unaffiliated with the insurer. Our results offer valuable insights into how investment delegation may affect the impacts of social norms on investment decisions.