Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/242963 
Year of Publication: 
2021
Series/Report no.: 
ICIR Working Paper Series No. 39/21
Publisher: 
Goethe University Frankfurt, International Center for Insurance Regulation (ICIR), Frankfurt a. M.
Abstract: 
Market risks account for an integral part of life insurers' risk profiles. This paper explores the market risk sensitivities of insurers in two large life insurance markets, namely the U.S. and Europe. Based on panel regression models and daily market data from 2012 to 2018, we analyze the reaction of insurers' stock returns to changes in interest rates and CDS spreads of sovereign counterparties. We find that the influence of interest rate movements on stock returns is more than 50% larger for U.S. than for European life insurers. Falling interest rates reduce stock returns in particular for less solvent firms, insurers with a high share of life insurance reserves and unit-linked insurers. Moreover, life insurers' sensitivity to interest rate changes is seven times larger than their sensitivity towards CDS spreads. Only European insurers significantly suffer from rising CDS spreads, whereas U.S. insurers are immunized against increasing sovereign default probabilities.
Subjects: 
Life insurance
interest rate risk
credit risk
JEL: 
G01
G18
G22
Document Type: 
Working Paper

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