The Evolution from Life Insurance to Financial Engineering

Ralph Koijen and Motohiro Yogo

No 29030, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Since the mid-1980s, the share of household net worth intermediated by US financial institutions has shifted from defined benefit plans to life insurers and defined contribution plans. Life insurers have primarily grown through variable annuities, which are mutual funds with longevity insurance, a potential tax advantage, and minimum return guarantees. The minimum return guarantees change the primary function of life insurers from traditional insurance to financial engineering. Variable annuity insurers are exposed to interest and equity risk mismatch and their stock returns were especially low during the COVID-19 crisis. We consider regulatory changes, such as more detailed financial disclosure and standardized stress tests, to monitor potential risk mismatch and to ensure stability of the insurance sector.

JEL-codes: G22 G32 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-fmk, nep-ias, nep-isf and nep-rmg
Note: AP CF
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Citations: View citations in EconPapers (2)

Published as Ralph S. J. Koijen & Motohiro Yogo, 2021. "The evolution from life insurance to financial engineering," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 46(2), pages 89-111, September.

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Journal Article: The evolution from life insurance to financial engineering (2021)
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