The evolution from life insurance to financial engineering

Ralph S.J. Koijen, Motohiro Yogo

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish (US)
Pages (from-to)89-111
Number of pages23
JournalGENEVA Risk and Insurance Review
Volume46
Issue number2
DOIs
StatePublished - Sep 2021

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance
  • Economics and Econometrics

Keywords

  • COVID-19 crisis
  • Global financial crisis
  • Life insurance industry
  • Minimum return guarantee
  • Variable annuity

Fingerprint

Dive into the research topics of 'The evolution from life insurance to financial engineering'. Together they form a unique fingerprint.

Cite this