Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • Forthcoming
  • Article
  • Review of Financial Studies

Regulatory Limits to Risk Management

By: Ishita Sen
  • Format:Print
ShareBar

Abstract

Variable annuities, the largest liability of U.S. life insurers, are investment products containing long-dated minimum return guarantees. I show that guarantees with similar economic risks are treated differently by regulation and these differences impact insurers’ hedging behavior. When the regulatory regime recognizes certain risks, insurers start to hedge these risks in a substantial way. For some guarantees, this involves hedging both interest rate and equity-market risks. However, for others, it involves hedging only equity-market risk. As the regulatory regime still does not recognize the interest rate risk of all guarantees, insurers remain exposed to substantial interest rate risk.

Keywords

Interest Rate Risk; Variable Annuities; Capital Regulation; Reinsurance; Derivatives; Risk Management; Interest Rates; Governing Rules, Regulations, and Reforms

Citation

Sen, Ishita. "Regulatory Limits to Risk Management." Review of Financial Studies (forthcoming). (Pre-published online October 31, 2022.)
  • SSRN
  • Find it at Harvard

About The Author

Ishita Sen

Finance
→More Publications

More from the Author

    • November 2022 (Revised December 2022)
    • Faculty Research

    Dicerna

    By: Malcolm Baker, Ishita Sen and Jonathan Wallen
    • April 2021 (Revised April 2022)
    • Faculty Research

    Next Insurance: Considering New Markets

    By: David S. Scharfstein, Ishita Sen and Dean Xu
    • 2021
    • Faculty Research

    Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies

    By: Ishita Sen and Ana-Maria Tenekedjieva
More from the Author
  • Dicerna By: Malcolm Baker, Ishita Sen and Jonathan Wallen
  • Next Insurance: Considering New Markets By: David S. Scharfstein, Ishita Sen and Dean Xu
  • Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies By: Ishita Sen and Ana-Maria Tenekedjieva
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College