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Tuesday, August 3 • 10:45am - 12:15pm
4C2 Life insurance convexity

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Nicolaus Grochola, Goethe University Frankfurt; Helmut Gründl, Goethe University Frankfurt; Christian Kubitza, University of Bonn

Life insurers massively sell savings policies that guarantee minimum withdrawals. When market interest rates increase, these guarantees become in-the-money, incentivizing withdrawals. We empirically document this effect by exploiting partly hand-collected insurer-level data. A one-standard-deviation increase in interest rates leads to an increase in withdrawal rates by 0.3 standard deviations. Thus, an interest rate rise can force insurers to sell assets. We build a granular model to estimate resulting fire sale externalities. Forced sales reduce asset prices by up to 1% and insurers' equity capital by up to 15bps. They are primarily driven by insurers' long-dated investments.

avatar for Jonas Raphael Jahnert

Jonas Raphael Jahnert

P.h.D Student, Institute of Insurance Economics, University of St. Gallen


Christian Kubitza

University of Bonn
avatar for Nicolaus Grochola

Nicolaus Grochola

Goethe University Frankfurt

Tuesday August 3, 2021 10:45am - 12:15pm EDT