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The impact of monetary policy iInterventions on the insurance industry

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  • Pelizzon, Loriana
  • Sottocornola, Matteo

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.

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  • Pelizzon, Loriana & Sottocornola, Matteo, 2018. "The impact of monetary policy iInterventions on the insurance industry," SAFE Working Paper Series 204, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:204
    DOI: 10.2139/ssrn.3167148
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    Cited by:

    1. Jon Frost & Patty Duijm & Clemens Bonner & Leo Haan & Jakob Haan, 2019. "International Lending of Dutch Insurers and Pension Funds: the Impact of ECB Monetary Policy and Prudential Policies in the Host Country," Open Economies Review, Springer, vol. 30(3), pages 445-456, July.
    2. Jon Frost & Patty Duijm & Clemens Bonner & Leo Haan & Jakob Haan, 2019. "International Lending of Dutch Insurers and Pension Funds: the Impact of ECB Monetary Policy and Prudential Policies in the Host Country," Open Economies Review, Springer, vol. 30(3), pages 445-456, July.

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    More about this item

    Keywords

    event study; monetary policy surprise; unconventional monetary policy; conventional monetary policy; insurance industry;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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