The Fragility of Market Risk Insurance

Ralph Koijen and Motohiro Yogo
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Ralph Koijen: University of Chicago

Working Papers from Princeton University. Economics Department.

Abstract: Variable annuities, which package mutual funds with minimum return guarantees over long horizons, accounted for $1.5 trillion or 35% of U.S. life insurer liabilities in 2015. Sales decreased and fees increased during the global financial crisis, and insurers made guarantees less generous or stopped offering guarantees to reduce risk exposure. These effects persist in the low interest rate environment after the global financial crisis, and variable annuity insurers suffered large equity drawdowns during the COVID-19 crisis. We develop and estimate a model of insurance markets in which financial frictions and market power determine pricing, contract characteristics, and the degree of market completeness.

Keywords: Insurance; Financial Crisis; Risk (search for similar items in EconPapers)
JEL-codes: G22 G32 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-fmk, nep-ias and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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https://www.nber.org/system/files/working_papers/w24182/w24182.pdf

Related works:
Journal Article: The Fragility of Market Risk Insurance (2022)
Working Paper: The Fragility of Market Risk Insurance (2018)
Working Paper: The Fragility of Market Risk Insurance (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2022-3

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