The Fragility of Market Risk Insurance

Ralph S.J. Koijen and Motohiro Yogo

Journal of Finance, 2022, vol. 77, issue 2, 815-862

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.

Date: 2022
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Citations: View citations in EconPapers (18)

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https://doi.org/10.1111/jofi.13118

Related works:
Working Paper: 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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