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The effect of inflation on US insurance markets: A Markov-switching model analysis

Author

Listed:
  • Dionne, Georges

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Fenou, Akouété-Tognikin

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Mnasri, Mohamed

    (HEC Montreal, Department of finance)

Abstract

We analyze the characteristics of the U.S. inflation rate series observed over the 1973-2023 period in order to capture and model the effect of inflation on the insurance industry. Two important conclusions emerge from the data: The US inflation rate series is characterized by a random trend and non-linear dynamics (asymmetry). These results led us to select the two-regime Markov-switching model to study the impact of inflation on various fundamental indicators of insurance industry performance in the US. We show that performance indicators are differently affected by inflation in the Life and P&C insurance sectors according to the inflation regime considered.

Suggested Citation

  • Dionne, Georges & Fenou, Akouété-Tognikin & Mnasri, Mohamed, 2025. "The effect of inflation on US insurance markets: A Markov-switching model analysis," Working Papers 25-2, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:2025_002
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    More about this item

    Keywords

    Inflation; US insurance industry; Markov model; COVID-19; Life insurance; P&C insurance;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G52 - Financial Economics - - Household Finance - - - Insurance

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