Intergenerational Risk Sharing in Life Insurance: Evidence from France

Johan Hombert and Victor Lyonnet
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Johan Hombert: HEC Paris - Ecole des Hautes Etudes Commerciales

Working Papers from HAL

Abstract: We study intergenerational risk sharing taking place in one of the most common retail investment products in Europe---life insurance savings contracts---focusing on the 1.4 trillion euro French market. Using regulatory and survey data, we show that contract returns are an order of magnitude less volatile than the returns of assets backing the contracts. Contract return smoothing is achieved using reserves that absorb fluctuations in asset returns and that generate intertemporal transfers across generations of investors. We estimate the average annual amount of intergenerational transfer at 1.4% of contract value, i.e., 17 billion euros per year or 0.8% of GDP. While theory asserts that intergenerational risk sharing cannot take place in competitive markets because it relies on non-exploited return predictability, we show that: (a)~contracts returns are indeed predictable; (b)~investor flows barely react to predictable returns; (c)~observed fees offset the estimated gain from exploiting contract return predictability.

Keywords: Life insurance; intergenerational risk-sharing (search for similar items in EconPapers)
Date: 2017-11-08
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-02068358

DOI: 10.2139/ssrn.3066092

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