Why insurers are being blamed for equity market instability
February 23, 2018 by Alistair Gray and Robin Wigglesworth
Computer-powered hedge funds shouldered much of the blame for exacerbating turmoil in markets this month but some are pointing the finger at a pillar of the financial system: the insurance sector.
Market strategists and industry analysts say a post-crisis change to the way US life insurers manage billions of customer dollars invested in variable annuities (VAs), which are popular tax-advantaged retirement accounts, has been a primary source of the instability.
VA’s promise steady income in retirement — but with superior returns to bond investments. Customers are naturally attracted by the potential for stock market upside, without the risk their assets will be wiped out should prices fall sharply. That is an enticing prospect for many Americans, especially given the decline of defined benefit pension plans.
Click HERE to read the full article via Financial Times.