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Insurers' investments before and after the Covid-19 outbreak

Author

Listed:
  • Federico Apicella

    (Bank of Italy)

  • Raffaele Gallo

    (Bank of Italy)

  • Giovanni Guazzarotti

    (Bank of Italy)

Abstract

This paper examines the impact of the pandemic outbreak on Italian insurers’ investment decisions between 2017 and 2020. By adopting a unique security-by-security holding dataset, we test how the investments of insurance companies in a single security varies when its price changes. Our findings suggest that Italian insurers on average play a stabilizing role in financial markets by increasing their exposure to securities whose price has fallen. However, their ability to weather shocks diminished on average after the pandemic outbreak, arguably as the abrupt fall of asset prices reduced insurers’ balance sheet capacity to absorb short-term losses on their security holdings. Indeed, insurers’ investment decisions were heavily affected by capital considerations after the pandemic outbreak: insurers did not play a stabilizing role if they had a lower solvency level and for assets more exposed to the risk of an increase in capital absorption (e.g. BBB-rated corporate bonds). Finally, insurers reduced their exposure to securities whose price had fallen for assets relating to more volatile liabilities, such as life unit-linked portfolios.

Suggested Citation

  • Federico Apicella & Raffaele Gallo & Giovanni Guazzarotti, 2022. "Insurers' investments before and after the Covid-19 outbreak," Temi di discussione (Economic working papers) 1363, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_1363_22
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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2022/2022-1363/en_tema_1363.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    insurance companies; investments; pandemic; financial stability; solvency ratio;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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