The Impact of Risk Management Mandates: Evidence from Variable Annuities

Authors

Cameron Ellis, University of Iowa - Department of FinanceFollow
Andrew Ellul, Indiana University - Kelley School of Business - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)Follow
Chotibhak Jotikasthira, Southern Methodist University (SMU) - Finance DepartmentFollow
Jianren Xu, University of North TexasFollow

Publication Date

3-11-2025

Abstract

We measure the causal effects of risk management mandates on firms' product choices and systemic risk exposure. Exploiting the staggered roll-out of an industry-wide mandate for enterprise risk management (ERM), a firm-wide approach, in the insurance industry, we find that affected firms reduced their offering of variable annuities with risky-guarantees and increased their offering of index-linked annuities, which provide a natural hedge. ERM also leads insurers to reduce correlated asset holdings, dampening potential fire-sale spillovers. Our findings suggest that ERM mandates materially reshape firms' risk-taking and strengthen financial stability.

Document Type

Article

Keywords

Enterprise Risk Management, Variable Annuities, Index-Linked Annuities, Risk Management, G22, G28, G32, G11

Disciplines

Finance

DOI

10.2139/ssrn.5160872

Source

SMU Cox: Finance (Topic)

Language

English