The Interplay between U.S. Economic Indicators and Insurance Firm Financial Health

Abstract

This study examined the relationship between U.S. economic indicators and the financial health of insurance firms over a decade, from 2010 to 2020. Utilizing a quantitative research approach, data was collected from top insurance companies, juxtaposed against macroeconomic indicators like GDP growth, inflation rate, interest rate, and unemployment rate. Through regression analysis, the study revealed significant correlations between these macroeconomic variables and insurance firms' profitability, solvency, and liquidity metrics. The results indicated that GDP growth was positively correlated with insurance firms' profitability, suggesting that in periods of economic expansion, insurance firms tend to be more profitable. In contrast, inflation rate showed a negative relationship with solvency ratios, pointing to the strain of rising costs on the firms' ability to meet long-term obligations. Interest rates were found to significantly affect the liquidity of insurance firms, where higher rates led to decreased liquidity, likely due to increased costs of borrowing and alterations in the value of rate-sensitive assets and liabilities. Lastly, unemployment rates were negatively correlated with insurance firms' premium collections, implying lower policy underwriting during times of higher joblessness. Moreover, while the interrelationships were evident, the degree of sensitivity varied across firms, with larger insurance providers appearing to be more resilient to macroeconomic fluctuations than their smaller counterparts. The study concluded that while insurance companies are inherently influenced by broader economic trends, the extent of their vulnerability or resilience is also determined by firm-specific factors like size, asset management strategies, and product diversification. The findings underscore the need for proactive management strategies for insurance firms in navigating the ever-shifting economic landscape. Keywords: U.S. Economic Indicators, Insurance Firm Profitability, Macroeconomic Fluctuations, Financial Health, Solvency Ratios