- Title
- The Fragility of Market Risk Insurance
- Author(s)
- Ralph Koijen Ralph Koijen (University of Chicago)
- Motohiro Yogo Motohiro Yogo (Princeton University)
- 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.
- Creation Date
- 2022-03
- Section URL ID
- Paper Number
- 2022-3
- URL
- https://www.nber.org/system/files/working_papers/w24182/w24182.pdf
- File Function
- Jel
- G22, G32
- Keyword(s)
- Insurance, Financial Crisis, Risk
- Suppress
- false
- Series
- 13