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Surrender runs

Author

Listed:
  • Andreas Loffler
  • Stefan Steins

Abstract

Rising interest rates can expose life insurers to surrender risk by reducing the market value of their assets and raising policyholders' outside returns. This paper develops a minimal model of an insurance-specific run mechanism in which strategic interaction arises because early surrenders can deplete the asset pool backing continuation values. We analyze a strategic surrender game in which a run is an equilibrium outcome determined jointly by asset values, contractual surrender claims, and payoff-dependent continuation benefits. The model yields closed-form interest-rate thresholds for fundamentals-driven and self-fulfilling runs. Thinner capitalization weakly lowers the joint-surrender cutoff. Continuation benefits raise surrender thresholds but can also create strategic complementarity.

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  • Andreas Loffler & Stefan Steins, 2026. "Surrender runs," Papers 2608.20982, arXiv.org.
    • Handle: RePEc:arx:papers:2608.20982
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    References listed on IDEAS

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    1. Martin Eling & Michael Kochanski, 2013. "Research on lapse in life insurance: what has been done and what needs to be done?," Journal of Risk Finance, Emerald Group Publishing, vol. 14(4), pages 392-413, August.
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    4. repec:eme:jrfpps:v:14:y:2013:i:2:p:392-413 is not listed on IDEAS
    5. Koijen, Ralph S.J. & Lee, Hae Kang & Van Nieuwerburgh, Stijn, 2024. "Aggregate lapsation risk," Journal of Financial Economics, Elsevier, vol. 155(C).
    6. Martin Eling & Michael Kochanski, 2013. "Research on lapse in life insurance: what has been done and what needs to be done?," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 14(4), pages 392-413, August.
    7. Nathan Foley-Fisher & Borghan Narajabad & Stéphane Verani, 2020. "Self-Fulfilling Runs: Evidence from the US Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3520-3569.
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