Post by conflict on Jun 2, 2017 2:52:40 GMT 4
RALPH S. J. KOIJEN, New York University (NYU) - Department of Finance, Centre for Economic Policy Research (CEPR)
Email: rkoijen@stern.nyu.edu
MOTOHIRO YOGO, Princeton University - Department of Economics, National Bureau of Economic Research
Email: MYOGO@PRINCETON.EDU
Insurers sell retail financial products called variable annuities that package mutual funds with minimum return guarantees over long horizons. Variable annuities accounted for $1.5 trillion or 34 percent of U.S. life insurer liabilities in 2015. Sales fell and fees increased after the 2008 financial crisis as the higher valuation of existing liabilities stressed risk-based capital. Insurers also made guarantees less generous or stopped offering guarantees entirely to reduce risk exposure. We develop a supply-driven theory of insurance markets in which financial frictions and market power determine pricing, contract characteristics, and the degree of market incompleteness.
papers.ssrn.com/sol3/papers.cfm?abstract_id=2972295
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