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arXiv · 2608.20982

Surrender runs

Andreas Löffler·Stefan Steins
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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 Löffler, Stefan Steins. 2026-08-21. Surrender runs. https://arxiv.org/abs/2608.20982

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