Financial Intermediaries’ Asset–Liability Dependency and Low-Interest-Rate Environment: Evidence from EU Life Insurers

Journal of Financial Management, Markets and Institutions, Vol. 7, No. 1 (2019)

25 Pages Posted: 22 Feb 2021

See all articles by Domenico Curcio

Domenico Curcio

University of Naples Federico II; Arcelli Centre for Monetary and Financial Studies (CASMEF)

Nicola Borri

LUISS University - Department of Economics and Finance

Rosaria Cerrone

University of Salerno Department of Management and Innovation Systems

Rosa Cocozza

University of Naples Federico II - Faculty of Economics

Date Written: April 2019

Abstract

This research studies the relationships between the two sides of life insurers' balance sheet and investigates whether and how they changed during recent past years, when European Central Bank monetary policy drove market rates to unprecedented low levels. By using a canonical correlation analysis, we study the internal structure of the links within and between the asset and liability sides of 24 major European Union (EU) life insurers' balance sheets over the 2007– 2015 time horizon.

We find strong and substantial evidence that life insurers' assets and liabilities have become more independent over time. We argue that the declining trend of market interest rates has contributed to the generalized reduction in the linkage between the asset side and the liability side of EU life insurers, and has made insurance companies more exposed to ALM-related risks relative to the period before the financial crisis.

Keywords: Insurance companies, asset–liability dependency, balance sheet, interest rates, canonical correlation

JEL Classification: G22, E43

Suggested Citation

Curcio, Domenico and Borri, Nicola and Cerrone, Rosaria and Cocozza, Rosa, Financial Intermediaries’ Asset–Liability Dependency and Low-Interest-Rate Environment: Evidence from EU Life Insurers (April 2019). Journal of Financial Management, Markets and Institutions, Vol. 7, No. 1 (2019), Available at SSRN: https://ssrn.com/abstract=3747869

Domenico Curcio (Contact Author)

University of Naples Federico II ( email )

Via Cintia, Monte S. Angelo
Naples, Naples 80126
Italy
+393402651322 (Phone)

Arcelli Centre for Monetary and Financial Studies (CASMEF) ( email )

Viale Romania 32
Rome, 00197
Italy

Nicola Borri

LUISS University - Department of Economics and Finance ( email )

viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://docenti.luiss.it/borri/

Rosaria Cerrone

University of Salerno Department of Management and Innovation Systems ( email )

Via Giovanni Paolo II
Fisciano, Salerno 84084
Italy

Rosa Cocozza

University of Naples Federico II - Faculty of Economics ( email )

Via Cintia Monte S. Angelo
Napoli, 80126
Italy
+39/81675083 (Phone)

HOME PAGE: http://www.docenti.unina.it/rosa.cocozza

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