The impact of the yield curve on the equity returns of insurance companies

The past two decades have provided an interest rate environment that has generally been in decline, with current short‐term rates near zero in most financial markets around the world. This environment puts pressure on insurance firms who generally rely on debt markets to provide returns to fund their future financial obligations and to produce profits for their shareholders. This study examines the impact that the yield curve has on equity returns of Canadian and U.S. insurance companies during the past two decades. Using various measures of the yield curve, U.S. insurers' equity returns tend to have a negative relationship with the yield curve. In the Canadian sample, although the yield curve coefficients are negative and thus directionally align with the U.S. results, there is little statistical significance. Finally, there is additional support for the information diffusion hypothesis and asymmetric impacts of the yield curve on insurers' equity returns.