The Separation of Banking from Insurance: Evidence from Europe
28 Pages Posted: 26 Jun 2015
Date Written: June 25, 2015
The European market of banks and insurance companies has traditionally no exact boundaries between insurance and banking activities. Such business arena poses distinctive challenges to both banking and insurance industries. The paper statistically evaluates the feasibility of a hybrid portfolio integrating banking and insurance services. It examines the risk-return effects of European banks’ diversification into life and non-life insurance underwriting, as well as into insurance broking businesses. More specifically, it focuses on financial data and analyzes changes in profitability, return volatility and creditworthiness of those financial institutions. The empirical results indicate that diversification by European banks into life and non-life insurance underwriting activities increases banks’ risk. Unlike the non-life insurance sector, the return on life assurance underwriting increases significantly.
Keywords: Bancassurance; Financial institutions; Bank diversification; Insurance activities; Risk-return analysis
JEL Classification: G21, G22, G28, G34
Suggested Citation: Suggested Citation