The evolution from life insurance to financial engineering

Ralph S. J. Koijen and Motohiro Yogo
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Ralph S. J. Koijen: University of Chicago

The Geneva Risk and Insurance Review, 2021, vol. 46, issue 2, No 1, 89-111

Abstract: 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.

Keywords: COVID-19 crisis; Global financial crisis; Life insurance industry; Minimum return guarantee; Variable annuity (search for similar items in EconPapers)
JEL-codes: G22 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Working Paper: The Evolution from Life Insurance to Financial Engineering (2021)
Working Paper: The Evolution from Life Insurance to Financial Engineering (2021)
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DOI: 10.1057/s10713-021-00068-1

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