The Fragility of Market Risk Insurance

Ralph Koijen and Motohiro Yogo

No 12560, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Insurers sell retail financial products called variable annuities that package mu- tual funds with minimum return guarantees over long horizons. Variable annuities accounted for $1.5 trillion or 34 percent of U.S. life insurer liabilities in 2015. Sales fell and fees increased after 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 entirely to reduce risk exposure. We develop an equilib- rium model of insurance markets in which financial frictions and market power are important determinants of pricing, contract characteristics, and the degree of market incompleteness.

JEL-codes: G22 G32 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-ias and nep-rmg
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: The Fragility of Market Risk Insurance (2022)
Working Paper: The Fragility of Market Risk Insurance (2022)
Working Paper: The Fragility of Market Risk Insurance (2018)
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