Capital issuances and premium growth in the property–liability insurance industry: evidence from the financial crisis and COVID-19 recession

The COVID-19-driven stock market crash in early 2020, as well as the recession following the financial crisis, generated sizeable operating losses for property–liability insurance companies. However, property–liability insurers were able to hold their capitalisation levels relatively stable during both recessions, issuing new capital and reducing dividends. We use these two recent recessions to empirically examine the determinants and consequences of capital issuances by property–liability insurance companies. We find that property–liability insurers raise capital to restore depleted levels due to operating losses and to fund business growth, and these determinants do not change during recessions. We further examine whether capitalisation levels constrain insurers' ability to meet demand during recessions and find no evidence this occurs. We rather find that new capital is associated with premium growth in subsequent time periods. There seem to be fewer frictions affecting property–liability insurers to recapitalise and accommodate demand compared to other financial services firms.