The Dynamic Impact of Macro Shocks on Insurance Premiums

Posted: 5 Jun 2009

See all articles by Feng Guo

Feng Guo

Institute of International Finance

Hung-Gay Fung

University of Missouri at Saint Louis - College of Business Administration

Ying Sophie Huang

Zhejiang University, School of Management

Date Written: June 4, 2009

Abstract

We develop a model that investigates the relation between insurance premiums and macroeconomic variables, including oil price, interest rate, aggregate supply, and aggregate demand. We then use a multivariate structural vector error correction model to distinguish the effects arising from permanent and transitory components of insurance premiums. Changes in the transitory component indicate that our model captures key historical events. Although real shocks originating from oil price and aggregate supply explain the behavior of insurance premiums well, we show that financial market shocks are the main driving force behind the recent increasing volatility in insurance premiums in the U.S. market.

Keywords: Insurance premiums, Structural shocks, Vector error correction model

JEL Classification: C32, E44, G22

Suggested Citation

Guo, Feng and Fung, Hung-Gay and Huang, Ying, The Dynamic Impact of Macro Shocks on Insurance Premiums (June 4, 2009). Journal of Financial Services Research, Vol. 35, No. 3, 2009, Available at SSRN: https://ssrn.com/abstract=1414427

Feng Guo (Contact Author)

Institute of International Finance

1333 H Street NW
Suite 800E
Washington, DC 20005
United States

Hung-Gay Fung

University of Missouri at Saint Louis - College of Business Administration ( email )

One University Blvd.
487 SSB
St. Louis, MO 63121
United States
314-516-6374 (Phone)

Ying Huang

Zhejiang University, School of Management ( email )

866 Yuhangtang Road
Hangzhou, Zhejiang 310058
China

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