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Effect of inflation on insurers’ main financial indicators with panel data in the US P&C insurance industry

Author

Listed:
  • Georges Dionne

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Denise Desjardins

    (HEC Montreal, Canada Research Chair in Risk Management)

Abstract

Very few contributions have analyzed the effect of inflation on the US insurance industry. We evaluate the impact of inflation on reinsurance demand, liquidity creation, ROA and other financial ratios for P&C insurers, with panel data and with particular attention to differences across firm sizes. We use observed and forecasted measures of inflation during the period 1993-2023. We compute forecasted rates of inflation from the Bayesian Vector Autoregression (BVAR) model under two different assumptions, the Gaussian distribution and the Student-t distribution. We proceed with the Generalized Method of Moments (GMM) for econometric estimations. Overall, the findings indicate that insurers are responsive to forecasted inflation in the long run as well to realized inflation in the short run. Largest insurance companies adapted more quickly to inflation during the period of analysis.

Suggested Citation

  • Georges Dionne & Denise Desjardins, 2025. "Effect of inflation on insurers’ main financial indicators with panel data in the US P&C insurance industry," Working Papers 25-07, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:021827
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    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G52 - Financial Economics - - Household Finance - - - Insurance

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