nach oben

Empirical Economics

Erschienen in:

01.08.2018

Asymmetric dynamics of insurance premium: the impacts of output and economic policy uncertainty

verfasst von: Rangan Gupta, Amine Lahiani, Chi-Chuan Lee, Chien-Chiang Lee

Erschienen in: Empirical Economics | Ausgabe 6/2019

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This paper investigates the asymmetric and nonlinear transmission of real output and economic policy uncertainty to insurance premiums for the US economy over the annual period of 1980–2014. Using the most up-to-date nonlinear autoregressive distributed lags framework, we simultaneously examine short- and long-run asymmetric responses of insurance premiums through positive and negative partial sum decompositions of changes in the explanatory variables. Our empirical results reveal that real output and economic policy uncertainties both affect insurance premiums in an asymmetric and nonlinear manner, but the transmission mechanism is not the same. As to the impact of real output, we find that an increase in real output leads to enhancing the insurance premiums, while a decrease in output has a greater impact causing insurance premiums to move down. For the impact of economic policy uncertainty, the results also suggest that total and non-life insurance premiums increase with rising uncertainty, while life insurance premiums decrease with rising uncertainty. These results have significant implications for insurance-related econometric analysis, investment decisions, forecasting, and policy-making.

Vorheriger Artikel Robustness and sensitivity analyses for stochastic volatility models under uncertain data structure

Nächster Artikel Importance of credibility for business confidence: evidence from an emerging economy

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

The Johansen approach can include both I(0) and I(1) series, one just needs to ensure the equation is balanced [I(1) series on both sides of the equation], and decide whether the I(0) series are restricted to the error correction equation or the cointegrating regression. We thank a referee for pointing this out.

While there are other measures of economic uncertainty that are based on an estimation of structural models (see for example, Jurado et al. 2015), we rely on a news-based approach, since the former method is likely to be driven by the variables included in the econometric framework. The reader may refer to Strobel (2015) for a detailed discussion of various approaches used in measuring economic uncertainty.

To deal with changing volumes of news articles for a given paper over time, Baker et al. (2016) divide the raw counts of policy uncertainty articles by the total number of news articles containing terms regarding the economy or business in the paper. They then normalize each paper’s series to a unit standard deviation prior to December 2009 and sum each paper’s series.

Note that \( {\text{GDP}}_{t}^{ + } \), \( {\text{GDP}}_{t}^{ - } \), \( {\text{EPU}}_{t}^{ + } \), and \( {\text{EPU}}_{t}^{ - } \) represent the cumulative partial sums of the positive and negative components of the time series. For example, \( {\text{GDP}}_{t}^{ + } \) is calculated as \( {\text{GDP}}_{t}^{ + } = \sum\nolimits_{i = 1}^{t} {\Delta {\text{GDP}}_{j}^{ + } } = \sum\nolimits_{i = 1}^{t} {\hbox{max} \left( {\Delta {\text{GDP}}_{j} ,0} \right)} \). The previous formula ensures that \( {\text{GDP}}_{t}^{ + } \) has the same length as all other regressors.

The best model is the one that has the lowest AIC and SIC values.

To see whether the findings are sensitive to different choices of economic policy uncertainty, we replicate the analysis by using the alternative measure of last observation rather than the average of monthly figures. Although the effects of EPU remain unchanged, most of them do not attain statistical significance. One possible explanation is in regard to the variation of variables. The year-end values are much more volatile compared with the annual average ones. We are particularly grateful to an anonymous referee for the valuable suggestions.

To see whether global uncertainty plays a role in the insurance market, we also replicate the analysis by using various alternative measures of uncertainty by Jurado et al. (2015), including financial uncertainty (FU), macro-uncertainty (MU), and real uncertainty (RU) for three horizons of 1, 3, and 12 months. Evidence shows that the sensitivity of insurance premiums to uncertainty varies, depending on which indicators of uncertainty are used. Although no solid inference can be drawn, we do find that insurance premiums decrease as global uncertainty increases. We are particularly grateful to an anonymous referee for the valuable suggestions.

Baker S, Bloom N, Davis S (2016) Measuring economic policy uncertainty. Q J Econ 131(4):1593–1636

Beck T, Webb I (2003) Economic, demographic, and institutional determinants of life insurance consumption across countries. World Bank Econ Rev 17(1):51–88

Beenstock M, Dickinson G, Khajuria S (1986) The determination of life premiums: an international cross-section analysis 1970–1981. Insur Math Econ 5(4):261–270

Bernanke B (1983) Irreversibility, uncertainty and cyclical investment. Q J Econ 98(1):85–106

Bloom N (2009) The impact of uncertainty shocks. Econometrica 77(3):623–685

Bloom N, Floetotto M, Jaimovich N, Saporta-Eksten I, Terry S (2018) Really uncertain business cycles. Econometrica 86(3):1031–1065

Browne MJ, Kim K (1993) An international analysis of life insurance demand. J Risk Insur 60(4):616–634

Carrière-Swallow Y, Céspedes LF (2013) The impact of uncertainty shocks in emerging economies. J Int Econ 90(2):316–325

Carter RL, Dickinson GM (1992) Obstacles to the liberalisation of trade in insurance. Harvester Wheatsheaf, London

Chang CH, Lee CC (2012) Non-linearity between life insurance and economic development: a revisited approach. Geneva Risk Insur Rev 37(2):223–257

Demir AU, Hall SG (2017) Financial structure and economic development: evidence on the view of ‘new structuralism’. Int Rev Financ Anal 52:252–259

Engle RF, Granger CWJ (1987) Cointegration and error correction: representation, estimation and testing. Econometrica 55(2):251–276

Enz R (2000) The S-curve relation between per-capita income and insurance penetration. Geneva Pap Risk Insur: Issues Pract 25(3):396–406

Fedoseeva S, Zeidan R (2018) How (a)symmetric is the response of import demand to changes in its determinants? evidence from European energy imports. Energy Econ 69:379–394

Feyen E, Lester R, Rocha R (2011) What drives the development of the insurance sector? an empirical analysis based on a panel of developed and developing countries. World Bank Working Paper 5572

Fousekis P, Katrakilidis C, Trachanas E (2016) Vertical price transmission in the US beef sector: evidence from the nonlinear ARDL model. Econ Model 52:499–506

Guesmi K, Dhaoui A, Goutte S, Abid I (2018) On the determinants of industry-CDS index spreads: evidence from a nonlinear setting. J Int Financ Mark Ins Money. https://doi.org/10.1016/j.intfin.2018.01.005 CrossRef

Gulen H, Ion M (2016) Policy uncertainty and corporate investment. Rev Financ Stud 29(3):523–564

Guo F, Fung HG, Huang YS (2009) The dynamic impact of macro shocks on insurance premiums. J Financ Serv Res 35(3):225–244

Harrington SE, Niehaus G (2000) Volatility and underwriting cycle. In: Dionne G (ed) The handbook of insurance. Kluwer Acadamic, Boston

Hatemi-J A, Ajmi AN, El Montasser G, Inglesi-Lotz R, Gupta R (2016a) Research output and economic growth in G7 countries: new evidence from asymmetric panel causality testing. Appl Econ 48(26):2301–2308

Hatemi-J A, Gupta R, Kasongo A, Mboweni T, Netshitenzhe N (2016b) Does tourism cause growth asymmetrically in a panel of G-7 countries? a short note. Empirica 45(1):49–57

Higgins M, Thistle PD (2000) Capacity constraints and the dynamics of underwriting profits. Econ Inq 38(3):442–457

Hoang THV, Lahiani A, Heller D (2016) Is gold a hedge against inflation? new evidence from a nonlinear ARDL approach. Econ Model 54:54–66

Hwang T, Gao S (2003) The determinants of the demand for life insurance in an emerging economy—the case of China. Manag Financ 29(5/6):82–96

Jawadi F, Bruneau C, Sghaier N (2009) Nonlinear cointegration relationships between non-life insurance premiums and financial markets. J Risk Insur 76(3):753–783

Johansen S (1988) Statistical analysis of cointegration vectors. J Econ Dyn Control 12(2–3):231–254

Johansen S (1991) Estimation and hypothesis of cointegration vectors in Gaussian vector autoregressive models. Econometrica 59(6):1551–1580

Jones PM, Olson E (2013) The time-varying correlation between uncertainty, output, and inflation: evidence from a DCC-GARCH model. Econ Lett 118(1):33–37

Julio B, Yook Y (2012) Political uncertainty and corporate investment cycles. J Financ 67(1):45–83

Jurado K, Ludvigson SC, Ng S (2015) Measuring uncertainty. Am Econ Rev 105(3):1177–1216

Kang W, Lee K, Ratti RA (2014) Economic policy uncertainty and firm-level investment. J Macroecon 39:42–53

Kugler M, Ofoghi R (2005) Does insurance promote economic growth? evidence from the UK. Money Macro and Finance Research Group, University of Southampton

Kwiatkowski D, Phillips PCB, Schmidt P, Shin Y (1992) Testing the null hypothesis of stationarity against the alternative of a unit root. J Econ 54:159–178

Lahiani A, Hammoudeh S, Gupta R (2016) Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting. Int Rev Econ Financ 43:443–456

Lee CC, Chiu YB (2012) The impact of real income on insurance premiums: evidence from panel data. Int Rev Econ Financ 21(1):246–260

Lee SJ, Kwon SI, Chung SY (2010) Determinants of household demand for insurance: the case of Korea. Geneva Pap Risk Insur: Issues Pract. 35(S1):82–91

Lee CC, Chiu YB, Chang CH (2013a) Insurance demand and country risks: a nonlinear panel data analysis. J Int Money Financ 36:68–86

Lee CC, Lee CC, Chiu YB (2013b) The link between life insurance activities and economic growth: some new evidence. J Int Money Financ 32:405–427

Lee CC, Lee CC, Chiou YY (2017) Insurance activities, globalization, and economic growth: new methods, new evidence. J Int Financ Mark Inst Money 51:155–170

Li D, Moshirian F, Nguyen P, Wee T (2007) The demand for life insurance in OECD countries. J Risk Insur 74(3):637–652

Liu GC, Lee CC, Lee CC (2016) The nexus between insurance activity and economic growth: a bootstrap rolling window approach. Int Rev Econ Financ 43:299–319

McMillan DG (2003) Non-linear predictability of UK stock market returns. Oxf Bull Econ Stat 65(5):557–573

Millo G (2016a) The income elasticity of nonlife insurance: a reassemssment. J Risk Insur 83(2):335–361

Millo G (2016b) The S-curve of reality. Geneva Pap Risk Insur: Issues Pract 41(4):608–625

Outreville JF (2013) The relationship between insurance and economic development: 85 empirical papers for a review of the literature. Risk Manag Insur Rev 16(1):71–122

Park S, Lemaire J (2011) Culture matters: long-term orientation and the demand for life insurance. Asia Pac J Risk Insur 5(2):2153–3792

Park S, Lemaire J (2012) The impact of culture on the demand for non-life insurance. Asia Pac J Risk Insur 42(2):501–527

Park H, Borde SF, Choi Y (2002) Determinants of insurance pervasiveness: a cross-national analysis. Int Bus Rev 11:79–96

Pesaran MH, Shin Y, Smith RJ (2001) Bounds testing approaches to the analysis of level relationships. J Appl Econom 16(3):289–326

Romilly P, Song H, Liu X (2001) Car ownership and use in Britain: a comparison of the empirical results of alternative cointegration estimation methods and forecasts. Appl Econ 33(14):1803–1818

Sephton P, Mann J (2015) Nonlinear attractors and asymmetries between non-life insurance premiums and financial markets. Empir Econ 49(3):783–799

Shin Y, Yu B, Greenwood-Nimmo M (2014) Modelling asymmetric cointegration and dynamic multipliers in an ARDL framework. In: Horrace WC, Sickles RC (eds) Festschrift in Honor of Peter Schmidt. Springer, New York

Strobel J (2015) On the different approaches of measuring uncertainty shocks. Econ Lett 134:69–72

Wang Y, Chen CR, Huang YS (2014) Economic policy uncertainty and corporate investment: evidence from China. Pac Basin Financ J 26:227–243

Ward D, Zurbruegg R (2000) Does insurance promote economic growth? Evidence from OECD countries. J Risk Insur 67(4):489–506

Ward D, Zurbruegg R (2002) Law, politics and life insurance consumption in Asia. Geneva Pap Risk Insur 27(3):395–412

Swiss Re (various years) Sigma. Zurich: Swiss Reinsurance Company

Zheng W, Liu Y, Dickinson G (2008) The Chinese insurance market: estimating its long-term growth and size. Geneva Pap Risk Insur: Issues Pract 33(3):489–506

Zivot E, Andrews DWK (1992) Further evidence on the great crash, the oil price shock, and the unit root hypothesis. J Bus Econ Stat 10:251–270

Titel: Asymmetric dynamics of insurance premium: the impacts of output and economic policy uncertainty
verfasst von: Rangan Gupta
Amine Lahiani
Chi-Chuan Lee
Chien-Chiang Lee
Publikationsdatum: 01.08.2018
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 6/2019
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-018-1539-z

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Springer Professional "Wirtschaft+Technik"

Weitere Artikel der Ausgabe 6/2019

A macro–financial analysis of the corporate bond market

Determinants of firm performance: does ethnic diversity matter?

Determinants of demand for traditional Chinese opera

On inflation expectations in the NKPC model

Importance of credibility for business confidence: evidence from an emerging economy

Relative efficiency of oil price versus oil output in promoting economic growth: Is OPEC’s strategy right?

Premium Partner