Effect of inflation on insurers’ main financial indicators with panel data in the US P&C insurance industry

Georges Dionne () and Denise Desjardins
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Denise Desjardins: HEC Montreal, Canada Research Chair in Risk Management

No 25-07, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: We study the effect of inflation on P&C insurers with individual data. We use observed and forecasted measures of inflation. We compute forecasted rates of inflation from the Bayesian Vector Autoregression (BVAR) model under two different assumptions, the Gaussian distribution and the Student-t distribution. For the econometric estimations, we proceed with the Generalized Method of Moments (GMM). Overall, the findings indicate that insurers are responsive to forecasted inflation as well to realized inflation. Proactive strategies—particularly those based on long-term forecasts—appear to enhance profitability and stabilize operations, while short-term reactions to realized inflation are more defensive.

Keywords: Inflation rate; US P&C insurance industry; forecasted inflation; observed inflation; reinsurance demand; liquidity creation; ROA; GMM estimation model; BVAR model (search for similar items in EconPapers)
JEL-codes: B22 E3 E4 G20 G22 G32 G38 G52 (search for similar items in EconPapers)
Pages: 105
Date: 2025-12-05
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Persistent link: https://EconPapers.repec.org/RePEc:ris:crcrmw:021827

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