Exploring the market risk profiles of U.S. and European life insurers

Nicolaus Grochola, Mark Joseph Browne, Helmut Gründl and Sebastian Schlütter

No 39/21, ICIR Working Paper Series from Goethe University Frankfurt, International Center for Insurance Regulation (ICIR)

Abstract: Market risks account for an integral part of life insurers' risk profiles. This paper explores the market risk sensitivities of insurers in two large life insurance markets, namely the U.S. and Europe. Based on panel regression models and daily market data from 2012 to 2018, we analyze the reaction of insurers' stock returns to changes in interest rates and CDS spreads of sovereign counterparties. We find that the influence of interest rate movements on stock returns is more than 50% larger for U.S. than for European life insurers. Falling interest rates reduce stock returns in particular for less solvent firms, insurers with a high share of life insurance reserves and unit-linked insurers. Moreover, life insurers' sensitivity to interest rate changes is seven times larger than their sensitivity towards CDS spreads. Only European insurers significantly suffer from rising CDS spreads, whereas U.S. insurers are immunized against increasing sovereign default probabilities.

Keywords: Life insurance; interest rate risk; credit risk (search for similar items in EconPapers)
JEL-codes: G01 G18 G22 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-fdg, nep-ias, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:icirwp:3921

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