The impact of monetary policy iInterventions on the insurance industry

Loriana Pelizzon () and Matteo Sottocornola

No 204, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: This paper investigates the effect of the conventional and unconventional (e.g. Quantitative Easing - QE) monetary policy intervention on the insurance industry. We first analyze the impact on the stock performances of 166 (re)insurers from the last QE programme launched by the European Central Bank (ECB) by constructing an event study around the announcement date. Then we enlarge the scope by looking at the monetary policy surprise effects on the same sample of (re)insurers over a timeframe of 12 years, also extending the analysis to the Credit Default Swaps (CDS) market. In the second part of the paper by building a set of balance sheet-based indices, we identify the characteristics of (re)insurers that determine sensitivity to monetary policy actions. Our evidences suggest that a single intervention extrapolated from the comprehensive strategy cannot be utilized to estimate the effect of monetary policy intervention on the market. With respect to the impact of monetary policies, we show how the effect of interventions changes over time. Expansionary monetary policy interventions, when generating an instantaneous reduction of interest rates, generated movement in stock prices in the same direction till September 2010. This effect turned positive during the European sovereign debt crisis. However, the effect faded away in 2014-2015. The pattern is confirmed by the impact on the CDS market. With regard to the determinants of these effects, our analysis suggests that sensitivity is mainly driven by asset allocation and in particular by exposure to fixed income assets.

Keywords: event study; monetary policy surprise; unconventional monetary policy; conventional monetary policy; insurance industry (search for similar items in EconPapers)
JEL-codes: E44 E52 G14 G22 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cba, nep-ias, nep-mac and nep-mon
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https://www.econstor.eu/bitstream/10419/177835/1/1019418613.pdf (application/pdf)

Related works:
Working Paper: The Impact of the Monetary Policy Interventions on the Insurance Industry (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:204

DOI: 10.2139/ssrn.3167148

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