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Insurance Sector Profitability and the Macroeconomic Environment

Author

Listed:
  • Cristina Dorofti
  • Petr Jakubik

    (EIOPA)

Abstract

Profitability is one of the most important determinants of insurers’ performance and healthiness. This article empirically investigates the link between the macroeconomic environment and insurers’ profitability using cross-country European aggregate data. Our empirical results suggest that low interest rates along with limited economic growth, poor equity market performance and high inflation has a negative impact on insurance profitability. The conducted empirical analysis allows regulators to better understand and roughly quantify those effects which might support discussion with insurers resulting in some mitigating actions. Further research needs to be done to develop top-down stress test methodologies to fully assess the impact of the low yield environment in combination with a sharp increase of risk premiums (the so called double hit scenario), on insurers’ profitability as well as solvency positions.

Suggested Citation

  • Cristina Dorofti & Petr Jakubik, 2015. "Insurance Sector Profitability and the Macroeconomic Environment," EIOPA Financial Stability Report - Thematic Articles 4, EIOPA, Risks and Financial Stability Department.
  • Handle: RePEc:eio:thafsr:4
    as

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    File URL: https://www.eiopa.europa.eu/sites/default/files/financial_stability/insurance_sector_profitability_and_the_macroeconomic_environmentfsr-may2015-.pdf
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    References listed on IDEAS

    as
    1. Feyen, Erik & Lester, Rodney & Rocha, Roberto, 2011. "What drives the development of the insurance sector ? an empirical analysis based on a panel of developed and developing countries," Policy Research Working Paper Series 5572, The World Bank.
    2. Casper Christophersen & Petr Jakubik, 2014. "Insurance and the Macroeconomic Environment," EIOPA Financial Stability Report - Thematic Articles 1, EIOPA, Risks and Financial Stability Department.
    3. Peter Haiss & Kjell Sümegi, 2008. "The relationship between insurance and economic growth in Europe: a theoretical and empirical analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(4), pages 405-431, September.
    4. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
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    Cited by:

    1. Mihovil An?elinovi? & Livija Valenti? & Ana Pavkovi?, 2020. "Equity Fund Performance and Sector Diversification," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 9(1), pages 25-43, June.

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    More about this item

    Keywords

    Insurance; macroeconomic environment; profitability; financial stability;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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