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Intergenerational Risk Sharing in Life Insurance: Evidence from France

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  • Hombert, Johan
  • Lyonnet, Victor

Abstract

We study intergenerational risk sharing in Euro-denominated life insurance contracts. These savings products represent 80% of the life insurance market in Europe. Using regulatory and survey data for the French market, which is €1.3 trillion large, we analyze the patterns of intergenerational redistribution implemented by these products. We show that contract returns are an order of magnitude less volatile than the return of assets underlying these contracts. Contract return smoothing is achieved using reserves that absorb fluctuations in asset returns and that generate intertemporal transfers across generations of investors. We estimate the average annual amount of intergenerational transfer at 1.4% of contract value, i.e., €17 billion or 0.8% of GDP. Finally, we provide evidence that smoothing makes contract returns predictable, but inflows react only weakly to these predictable returns.

Suggested Citation

  • Hombert, Johan & Lyonnet, Victor, 2017. "Intergenerational Risk Sharing in Life Insurance: Evidence from France," HEC Research Papers Series 1237, HEC Paris, revised 29 Nov 2017.
    • Handle: RePEc:ebg:heccah:1237
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    Cited by:

    1. Henri Fraisse & Christophe Hurlin, 2024. "Modèles internes des banques pour le calcul du capital réglementaire (IRB) et intelligence artificielle," Débats économiques et financiers 44, Banque de France.
    2. Cyril Pouvelle., 2022. "An Analysis of Financial Conglomerate Resilience: A Perspective on bancassurance in France [Une analyse de la résilience des conglomérats financiers : Une perspective sur la bancassurance en France," Débats économiques et financiers 39, Banque de France.
    3. Stéphane Loisel, 2014. "Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views," Post-Print hal-02013669, HAL.
    4. Ralph S. J. Koijen & Motohiro Yogo, 2021. "The evolution from life insurance to financial engineering," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 46(2), pages 89-111, September.
    5. Aurélien Violon & Dominique Durant & Oana Toader, 2018. "The Impact of the Identification of GSIBs on their Business Model," Débats économiques et financiers 33, Banque de France.
    6. Eric Monnet, & Angelo Riva, & Stefano Ungaro., 2021. "The Real Effects of Bank Runs. Evidence from the French Great Depression (1930-1931) [Les effets réels des ruées bancaires : l’exemple de la Grande Dépression en France (1930-1931)]," Débats économiques et financiers 37, Banque de France.
    7. Ralph S.J. Koijen & Motohiro Yogo, 2022. "The Fragility of Market Risk Insurance," Journal of Finance, American Finance Association, vol. 77(2), pages 815-862, April.
    8. Grochola, Nicolaus & Browne, Mark Joseph & Gründl, Helmut & Schlütter, Sebastian, 2021. "Exploring the market risk profiles of U.S. and European life insurers," ICIR Working Paper Series 39/21, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    9. J. Hombert & V. Lyonnet, 2017. "Intergenerational Risk Sharing in Life Insurance: Evidence from France," Débats économiques et financiers 30, Banque de France.
    10. Nguyen, Hang & Sherris, Michael & Villegas, Andrés M. & Ziveyi, Jonathan, 2024. "Scenario selection with LASSO regression for the valuation of variable annuity portfolios," Insurance: Mathematics and Economics, Elsevier, vol. 116(C), pages 27-43.

    More about this item

    Keywords

    Life insurance; intergenerational risk-sharing;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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