Working Paper: NBER ID: w23365
Authors: Ralph S.J. Koijen; Motohiro Yogo
Abstract: We summarize recent trends in risk exposure for U.S. life insurers from variable annuities, shadow insurance, securities lending, and derivatives. We discuss how these sources of risk could be amplified and transmitted to the rest of the financial sector and the real economy. More complete and transparent financial statements are necessary to accurately assess the overall risk mismatch in the insurance industry. We suggest ways to disclose relevant information and discuss some implications for insurance regulation.
Keywords: No keywords provided
JEL Codes: G12; G21; G22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shift towards variable annuities with minimum-return guarantees (G52) | increased complexity of risk profiles for life insurers (G52) |
| increased complexity of risk profiles for life insurers (G52) | significant risk mismatches (D81) |
| variable annuities (G22) | financial instability (F65) |
| use of shadow insurance (G52) | reduce risk-based capital requirements (G28) |
| use of shadow insurance (G52) | increase leverage (G32) |
| growth of shadow insurance (G52) | increased risk exposure of life insurers (G52) |
| securities lending practices (G24) | significant losses during the financial crisis (F65) |
| insurer practices (G22) | systemic risk (E44) |