Abstract
Since the mid-1980s, the share of household net worth intermediated by US financial institutions has shifted from defined benefit plans to life insurers and defined contribution plans. Life insurers have primarily grown through variable annuities, which are mutual funds with longevity insurance, minimum return guarantees, and a potential tax advantage. Through the minimum return guarantees, the primary function of life insurers has changed from traditional insurance to financial engineering. Variable annuity insurers are exposed to interest and equity risk mismatch and suffered especially low stock returns during the COVID-19 crisis. We suggest ways to improve upon the current regulation through more detailed financial disclosure and standardized stress tests.
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