Insurance corporations’ balance sheets, financial stability and monetary policy

Christoph Kaufmann, Jaime Leyva () and Manuela Storz

No 2892, Working Paper Series from European Central Bank

Abstract: The euro area insurance sector and its relevance for real economy financing have grown significantly over the last two decades. This paper analyses the effects of monetary policy on the size and composition of insurers’ balance sheets, as well as the implications of these effects for financial stability. We find that changes in monetary policy have a significant impact on both sector size and risk-taking. Insurers’ balance sheets grow materially after a monetary loosening, implying an increase of the sector’s financial intermediation capacity and an active transmission of monetary policy through the insurance sector. We also find evidence of portfolio re-balancing consistent with the risk-taking channel of monetary policy. After a monetary loosening, insurers increase credit, liquidity and duration risk-taking in their asset portfolios. Our results suggest that extended periods of low interest rates lead to rising financial stability risks among non-bank financial intermediaries. JEL Classification: E52, G11, G22, G23

Keywords: monetary policy transmission; non-bank financial intermediation; portfolio re-balancing; risk-taking (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-ifn, nep-mon and nep-rmg
Note: 2857527
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Related works:
Working Paper: Insurance corporations’ balance sheets, financial stability and monetary policy (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242892

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