Impact of interest rates on the life insurance market development: Cross-country evidence

Abstract

Studies have found that interest rates create incentives for insurance firms to focus on financial markets through investments. Using a cross-country context, we conjecture that interest rates affect the life insurance market’s development. Using an initial sample comprising the time series of interest rates and insurance markets’ measures from 34 countries across 1998–2017, we found that the density and penetration of the life insurance market is low in countries with high interest rates. Using another sample of 6,451 observations from insurance firms operating in the same 34 countries, we verified that the financial and operational incomes are equally significant in predicting the net income for life insurance companies that operate in countries with high interest rates. Our study contributes to observations that the lack of governmental control over public expenses impacts interest rates and, thereby, the opportunities for insurers.