Wealth and Insurance Choices: Evidence from US Households

Link: http://public.kenan-flagler.unc.edu/faculty/kuhnenc/RESEARCH/gropper_kuhnen.pdf

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Abstract:

Theoretically, wealthier people should buy less insurance, and should self-insure through saving instead, as insurance entails monitoring costs. Here, we use administrative data for 63,000 individuals and, contrary to theory, find that the wealthier have better life and property insurance coverage. Wealth-related differences in background risk, legal risk, liquidity constraints, financial literacy, and pricing explain only a small
fraction of the positive wealth-insurance correlation. This puzzling correlation persists in individual fixed-effects models estimated using 2,500,000 person-month observations. The fact that the less wealthy have less coverage, though intuitively they benefit more from insurance, might increase financial health disparities among households.

Author(s): Michael Gropper, Camelia M. Kuhnen

Publication Date: 16 July 2021

Publication Site: University of North Carolina

Ruark Consulting Releases 2021 Variable Annuity Studies

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Excerpt:

Pandemic-related factors dampened VA policyholder behavior in 2020. Extreme market activity in the first half of the year, disruption to policyholders’ usual communication patterns with advisors and agents by COVID-related social distancing, and the suspension of required minimum distributions under the CARES Act all served to depress surrender and income commencement behavior; however, the effects were not uniform, instead manifesting in specific market sectors as described below.

In the first half of 2020, declines in account values made guarantees relatively more valuable, leading to greater persistency.

As annuity sales volumes fell in 2020, VA surrender rates fell as well. However, the declines in surrender rates were concentrated among ultimate contract durations, where rates fell 1-2 percentage points independent of rider type or benefit value. Evidence suggests producers focused their attention on contracts at the shock duration (immediately following the expiration of surrender charges), leading to less turnover among the longest-dated contracts. The decline in surrenders is suggestive of a new, unique surrender regime, distinct from the regimes we observe before and after the 2008 financial crisis.

Author(s): Eric Halpern

Publication Date: 25 June 2021

Publication Site: Ruark Consulting

Multiemployer Pensions Reach Highest Funding Levels in 13 Years

Link: https://www.ai-cio.com/news/multiemployer-pensions-reach-highest-funding-levels-13-years/?

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Robust investment returns helped boost the aggregate funded percentage of all US multiemployer pension plans to 88% at the end of 2020, from 85% a year earlier—the highest since before the global financial crisis at the end of 2007—according to consulting and actuarial firm Milliman.  

The strong performance came despite a turbulent year of market volatility due to the impact of the COVID-19 pandemic. The volatility caused those same plans’ funded ratio to plunge to 72% during the first quarter of the year, which was the largest quarterly drop in funded percentage since 2007. That was followed by a rebound to 82% in the second quarter, which was the largest quarterly increase in funded percentage since 2007.

Author(s): Michael Katz

Publication Date: 22 February 2021

Publication Site: ai-CIO

With lower returns on the horizon, public pensions will turn to riskier assets, Moody’s says

Link: https://www.marketwatch.com/amp/story/with-lower-returns-on-the-horizon-public-pensions-will-turn-to-riskier-assets-moodys-says-11614289692?mod=dist_amp_social

Excerpt:

State and local government pension systems are increasingly dependent on investment returns, and at risk of increasingly volatile results, as funding levels remain depressed and systems increasingly start to pay out more than they take in, according to a new report from Moody’s.

The credit-ratings agency anticipates higher volatility and lower returns across asset classes in 2021 compared to 2020, even as many pension sponsors have spent the past few years lowering their assumed returns from previous loftier targets that they rarely hit.

“With persistently low interest rates for high-grade fixed-income securities, public pension systems continue to rely on highly volatile equities and alternatives to meet return targets, posing a material credit risk for some governments,” the Moody’s analysts wrote.

Author(s): Andrea Riquier

Publication Date: 25 February 2021

Publication Site: MarketWatch