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Rotterdam School of Management,
(cv & bio)
« Insurers As Asset Managers and Systemic Risk »
Financial intermediaries often provide guarantees that resemble out-of-the-money put options, exposing them to tail risk. Using the U.S. life insurance industry as a laboratory, we present a model in which variable annuity (VA) guarantees and associated hedging operate within the regulatory capital framework to create incentives for insurers to overweight illiquid bonds (“reach-for-yield”). We then calibrate the model to insurer-level data, and show that the VAwriting insurers’ collective allocation to illiquid bonds exacerbates system-wide fire sales in the event of negative asset shocks, plausibly erasing up to 20-70% of insurers’ equity capital.
79 avenue de la République 75011 Paris
Friday 16 november 2018
12:00am to 13:30pm, Room 4210
For security reason, please register before the deadline.
Deadline: 15 november 2018
NB. If you are prevented from coming, we would be obliged if you could inform us as soon as possible at firstname.lastname@example.org.