Insurance Sector Profitability and the Macroeconomic Environment

Cristina Dorofti and Petr Jakubík

No 4, EIOPA Financial Stability Report - Thematic Articles from EIOPA, Risks and Financial Stability Department

Abstract: Profitability is one of the most important determinants of insurers’ performance and healthiness. This article empirically investigates the link between the macroeconomic environment and insurers’ profitability using cross-country European aggregate data. Our empirical results suggest that low interest rates along with limited economic growth, poor equity market performance and high inflation has a negative impact on insurance profitability. The conducted empirical analysis allows regulators to better understand and roughly quantify those effects which might support discussion with insurers resulting in some mitigating actions. Further research needs to be done to develop top-down stress test methodologies to fully assess the impact of the low yield environment in combination with a sharp increase of risk premiums (the so called double hit scenario), on insurers’ profitability as well as solvency positions.

Keywords: Insurance; macroeconomic environment; profitability; financial stability (search for similar items in EconPapers)
JEL-codes: E27 G22 G28 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2015-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Financial Stability Report, EIOPA, May 2015, pages 56-71

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Persistent link: https://EconPapers.repec.org/RePEc:eio:thafsr:4

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