ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

Risk Affection and Transmission of News of Conditional Volatility from the Non-Life to Life Insurance Sector

Apostolos Kiohos

Correspondence: Apostolos Kiohos, akiohos@uom.edu.gr

Department of International and European Studies, University of Macedonia, Greece

pdf (974.89 Kb) | doi: https://doi.org/10.47260/bae/725

Abstract

Non- Life and Life Insurance companies are the main expedients of risk transfer and risk management procedure in the economy and the society. This paper examines, in eight worldwide advanced insurance markets, whether there are transmissions of news of conditional volatility from the non-life to life insurance sector. The reason is that, regularly, non-life insurance risks have higher volatility and they are less predictable than life insurance risks. A GJR - GARCH model is used to test these relationships for the period January 1st 1990 to June 28th 2019 using daily trading observations for each listed insurance index. The results suggest that the French and the Australian non-life insurance sectors influence their life insurance sectors to a greater extent than the other countries insurance indices under study. There is also evidence that the leverage effect indicates that bad news concerning the non-life insurance index shows a more intense impact on the volatility of the life insurance index than the good news in the majority of the countries under study. However, bad and good news are symmetrical in French and Australian insurance markets.

Keywords:

  Insurance risks, Volatility, Non- Life Insurance, Life Insurance, GJR GARCH


References

Arena, M. (2008) Does insurance market activity promote economic growth? Across-country study for industrialized and developing countries. Journal of Risk and Insurance, 75(4), 921-946.

Assenmacher-Wesche, K., and Pesaran, M. H. (2008) A VECX model of the Swiss economy. CESifo working paper, 2281, Center for Economic Studies and Ifo Institute (CESifo), Munich.

Brooks, C. (2014) Introductory Econometrics for Finance. Cambridge: Cambridge University Press.

Choi, S., Hardigree, D., and Thistle, P. D. (2002) The property-casualty insurance cycle: A comparison of alternative models. Southern Economic Journal, 68(3), 530–548.

Eling, M., and Jia, R. (2018) Business failure, efficiency, and volatility: Evidence from the European insurance industry, International Review of Financial Analysis, 59, 58-76.

Eling, M., Schmeiser, H. (2010) Insurance and the Credit Crisis: Impact and Ten Consequences for Risk Management and Supervision, The Geneva Paper on Risk and Insurance: Issues and Practice, 35, 9–34.

Glosten, L. R., Jaganathan, R. and Runkle D. (1993) On the Relation between the Expected Value and the Volatility of the Normal Excess Return on Stocks, Journal of Finance, 48, 1779–1801.

Grace, M. and Hotchkiss, J. (1995) External impacts on property-liability insurance cycle’, Journal of Risk and Insurance 62(4), 738–754.

Harrington, S. E., and Yu, T. (2003) Do property and liability insurance underwriting margins have unit roots? Journal of Risk and Insurance, 70(4), 715–753.

Leverty, J. T., and Grace, M. F. (2010) The robustness of output measures in property liability insurance efficiency studies. Journal of Banking and Finance, 34(7), 1510–1524.

Leverty, J. T., and Grace, M. F. (2012) Dupes or incompetents? An examination of management's impact on firm distress. The Journal of Risk and Insurance, 79(3), 751–783.

Ligon, J. A., and Thistle, P. D. (2007) A behavioral model of insurance pricing. Journal of Insurance Issues, 30, 46 –61.

Saunders, A., and Cornett, M.M. (2018) Financial Institutions Management: A risk Management Approach, New York, NY : McGraw-Hill Education.

Shi-jie Jiang, Feiyun Xiang and Ning Zhang. (2019) Asymmetric adjustment of insurance profits: evidence from the U.S. non-life insurance markets, Economic Research-Ekonomska Istraživanja, 32:1, 2780-2797.

Tetin, I. A. (2016) Underwriting cycles and competition impact in evaluation of insurance company’s effective strategy. Bulletin of the South Ural State University. Ser. Computer Technologies, Automatic Control and Radioelectronics, 16(4), 155–161.