Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278661 
Year of Publication: 
2023
Series/Report no.: 
ECB Working Paper No. 2829
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
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.
Subjects: 
Life Insurance
Liquidity Risk
Interest Rates
Surrender Options
Systemic Risk
JEL: 
G22
E44
E52
G52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6114-1
Document Type: 
Working Paper

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