The Evolution from Life Insurance to Financial Engineering / Ralph S. J. Koijen, Motohiro Yogo.

Format:

Book

Author/Creator:

Koijen, Ralph S. J.

Contributor:

National Bureau of Economic Research.

Yogo, Motohiro.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29030.

NBER working paper series no. w29030

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

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.

Notes:

Print version record

July 2021.