The Fragility of Market Risk Insurance /
Koijen, Ralph.
The Fragility of Market Risk Insurance / Ralph Koijen, Motohiro Yogo. - Cambridge, Mass. National Bureau of Economic Research 2018. - 1 online resource: illustrations (black and white); - NBER working paper series no. w24182 . - Working Paper Series (National Bureau of Economic Research) no. w24182. .
January 2018.
Insurers sell retail financial products called variable annuities that package mutual funds with minimum return guarantees over long horizons. Variable annuities accounted for $1.5 trillion or 35% of U.S. life insurer liabilities in 2015. Sales decreased and fees increased during the 2008 financial crisis as the higher valuation of existing liabilities stressed risk-based capital. Insurers also made guarantees less generous or stopped offering guarantees to reduce risk exposure. These supply-side effects persist long after the financial crisis in the low interest rate environment, and variable annuity insurers suffered especially low stock returns during the COVID-19 crisis. We develop an equilibrium model of insurance markets in which financial frictions and market power are important determinants of pricing, contract characteristics, and the degree of market incompleteness.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
The Fragility of Market Risk Insurance / Ralph Koijen, Motohiro Yogo. - Cambridge, Mass. National Bureau of Economic Research 2018. - 1 online resource: illustrations (black and white); - NBER working paper series no. w24182 . - Working Paper Series (National Bureau of Economic Research) no. w24182. .
January 2018.
Insurers sell retail financial products called variable annuities that package mutual funds with minimum return guarantees over long horizons. Variable annuities accounted for $1.5 trillion or 35% of U.S. life insurer liabilities in 2015. Sales decreased and fees increased during the 2008 financial crisis as the higher valuation of existing liabilities stressed risk-based capital. Insurers also made guarantees less generous or stopped offering guarantees to reduce risk exposure. These supply-side effects persist long after the financial crisis in the low interest rate environment, and variable annuity insurers suffered especially low stock returns during the COVID-19 crisis. We develop an equilibrium model of insurance markets in which financial frictions and market power are important determinants of pricing, contract characteristics, and the degree of market incompleteness.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.