Insurers’ Investment Strategies: Pro- or Countercyclical?

54 Pages Posted: 30 Jul 2019

See all articles by Linda Fache Rousová

Linda Fache Rousová

European Central Bank (ECB)

Margherita Giuzio

European Central Bank (ECB)

Date Written: July, 2019

Abstract

Traditionally, insurers are seen as stabilisers of financial markets that act countercyclically by buying assets whose price falls. Recent studies challenge this view by providing empirical evidence of procyclicality. This paper sheds new light on the underlying reasons for these opposing views. Our model predicts procyclicality when prices fall due to increasing risk premia, and countercyclicality in response to rises in the risk-free rate. Using granular data on insurers’ government bond holdings, we validate these predictions empirically. Our findings contribute to the current policy discussion on macroprudential measures beyond banking.

Keywords: cyclicality, financial stability, insurance companies, portfolio allocation, sovereign debt crisis

JEL Classification: G01, G11, G12, G22, G23

Suggested Citation

Fache Rousová, Linda and Giuzio, Margherita, Insurers’ Investment Strategies: Pro- or Countercyclical? (July, 2019). ECB Working Paper No. 2299, Available at SSRN: https://ssrn.com/abstract=3428292

Linda Fache Rousová (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Margherita Giuzio

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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