Manuel Mezger
Title
M.A.
Last Name
Mezger
First name
Manuel
Email
manuel.mezger@unisg.ch
Phone
+41 71 224 7946
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Item type:Publication, Subsidised Illiquidity Insulators -The Effect of FHLB Membership on Life Insurers' Strategic Asset Allocation(2024)Over the past decade, life insurers have significantly increased their holdings of illiquid alternative assets in pursuit of higher yields. This study explores the drivers behind this trend, demonstrating that it is not solely due to the insurers' illiquid liability structure but is also influenced by an implicit liquidity backstop provided by the Federal Home Loan Bank System (FHLB). Our analysis reveals that the "liquidity-of-last-resort" channel provided by the FHLB prompts life insurers to shift about 3% of their assets under management from liquid assets towards illiquid assets ex-ante, predominantly non-housing related assets such as non-residential mortgages, non-mortgage-related asset-backed securities and other long-term investments such as hedge funds and private equity partnerships. As the FHLB was initially established to support residential real estate financing, this finding is potentially at odds with the public's expectation regarding the role of the institution. Our results contribute to a broader literature on publicly funded liquidity relief programs for financial institutions, illustrating how the fungibility of the liquidity support provided can lead to unintended consequences.Type:conference paper - Some of the metrics are blocked by yourconsent settings
Item type:Publication, The appeal of registered index-linked annuities for myopic prospect theory investors(2024)Investors with preferences based on prospect theory may choose different investment strategies due to their perception of rare market events. We revisit research on preferences for financial guarantees offered by US life insurers to show how the appeal of registered index-linked annuities (RILAs) to such investors depends on their subjective evaluation of rare but extreme events. We further show that our model offers an explanation for the growing popularity of this new guarantee, but also accurately captures sales patterns across different types of RILAs. Our results suggest that life insurers create value for retail investors by tailoring financial guarantees to their behavioral preferences.Type:conference paper