What's Wrong with Annuity Markets?

Pei Cheng Yu and Stephane Verani

No 2020-10, Discussion Papers from School of Economics, The University of New South Wales

Abstract: The annuity market in the US has been historically small. What drives this fact? The annuity market could be small because of adverse selection or supply-side frictions in insurance markets. Identifying demand- and supply-side frictions is difficult without data separately measuring exogenous shocks and endogenous responses. In this paper, we provide a novel identification using annuity price data and regulatory capital requirements. Using publicly available data, we document a robust relationship between shocks originating in the corporate bond market and annuity price markups. We show that this relationship supports a standard model of adverse selection with an incomplete bond market.

Keywords: life insurance; annuities; corporate bond market; limited liability; interest rate risk management (search for similar items in EconPapers)
JEL-codes: D86 G22 G32 H24 H55 H63 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2020-08
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http://research.economics.unsw.edu.au/RePEc/papers/2020-10.pdf (application/pdf)

Related works:
Journal Article: What’s Wrong with Annuity Markets? (2024)
Working Paper: What's Wrong with Annuity Markets? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:swe:wpaper:2020-10

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