The Fragility of Market Risk Insurance

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, insurers made less generous stopped offering to reduce risk exposure. These effects persist low-interest environment after variable annuity suffered large equity drawdowns COVID-19 crisis. We develop estimate a model insurance markets frictions market power determine pricing, contract characteristics, degree completeness. This article is protected by copyright. All rights reserved