Verlag:
International Center for Insurance Regulation, Goethe University Frankfurt, [Frankfurt am Main]
Life insurers massively sell savings contracts with surrender options which allow policyholders to withdraw a guaranteed amount before maturity. These options move toward the money when interest rates rise. Using data on German life insurers, we...
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
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DS 379
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Life insurers massively sell savings contracts with surrender options which allow policyholders to withdraw a guaranteed amount before maturity. These options move toward the money when interest rates rise. Using data on German life insurers, we estimate that a 1 percentage point increase in interest rates raises surrender rates by 17 basis points. We quantify the resulting liquidity risk in a calibrated model of surrender decisions and insurance cash flows. Simulations predict that surrender options can force insurers to sell up to 3% of their assets, depressing asset prices by 90 basis points. The e↵ect is amplified by the duration of insurers' investments, and its impact on the term structure of interest rates depends on life insurers' investment strategy.
ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
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DS 711
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keine Fernleihe
Life insurers sell savings contracts with surrender options, allowing policyholders to prematurely withdraw guaranteed surrender values. Surrender options move toward the money when interest rates rise. Hence, higher interest rates raise surrender rates, as we document for the German life insurance sector. Using a calibrated model, we estimate that surrender options would force insurers to sell up to 2% of their investments during an enduring interest rate rise of 25 bps per annum. The resulting price impact depends on insurers' investment behavior. Forced asset sales are amplified by insurers' long-term investments but mitigated by reducing the guarantees on surrender values.
Verlag:
European Central Bank, Frankfurt am Main, Germany
Life insurers sell savings contracts with surrender options, which allow policyholders to prematurely receive guaranteed surrender values. These surrender options move toward the money when interest rates rise. Hence, higher interest rates raise...
mehr
ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signatur:
DS 534
Fernleihe:
keine Fernleihe
Life insurers sell savings contracts with surrender options, which allow policyholders to prematurely receive guaranteed surrender values. These surrender options move toward the money when interest rates rise. Hence, higher interest rates raise surrender rates, as we document empirically by exploiting plausibly exogenous variation in monetary policy. Using a calibrated model, we then estimate that surrender options would force insurers to sell up to 2% of their investments during an enduring interest rate rise of 25 bps per year. We show that these fire sales are fueled by surrender value guarantees and insurers' long-term investments.