The Sensitivity of Life Insurance Firms to Interest Rate Changes

32 Pages Posted: 28 Jan 2014

See all articles by Kyal Berends

Kyal Berends

Federal Reserve Bank of Chicago

Robert McMenamin

Federal Reserve Bank of Chicago - Economic Research

Thanases Plestis

Federal Reserve Bank of Chicago

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research

Date Written: August 27, 2013

Abstract

The authors examine the interest rate risk of life insurers by estimating the sensitivity of their stock returns to changes in the return on bonds over a time frame that includes a relatively calm period before the recent financial crisis, the financial crisis itself, and the recent period of low interest rates. They find that when bonds increase in value (that is, when interest rates fall), stocks of large insurance firms decrease in value more than those of their smaller counterparts.

Keywords: Insurance, Insurance Companies, life insurance, interest rates

JEL Classification: E4, G22

Suggested Citation

Berends, Kyal and McMenamin, Robert and Plestis, Thanases and Rosen, Richard J., The Sensitivity of Life Insurance Firms to Interest Rate Changes (August 27, 2013). Economic Perspectives, Vol. 37, No. 2, 2013, Available at SSRN: https://ssrn.com/abstract=2386163

Kyal Berends

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Robert McMenamin

Federal Reserve Bank of Chicago - Economic Research ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Thanases Plestis

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Richard J. Rosen (Contact Author)

Federal Reserve Bank of Chicago - Economic Research ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-6368 (Phone)
312-294-6262 (Fax)

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