Insurance Corporations and Monetary Policy Effects

This working paper analyzes the relationship between insurance corporations' balance sheets, financial stability, and monetary policy. It discusses how changes in monetary policy significantly impact the size and composition of insurers' balance sheets, particularly in the euro area. The research highlights that after a monetary loosening, insurers' total assets can increase by 4.5% within a year, reflecting a substantial rise in their financial intermediation capacity. The paper documents that insurers tend to re-balance their portfolios towards riskier assets, such as stocks and investment fund shares, while decreasing cash holdings. This shift indicates a higher risk-taking behavior among insurers in response to lower interest rates. The findings suggest that prolonged low interest rates can lead to increased financial stability risks within the non-bank financial system, particularly for insurance corporations. The implications of these dynamics for monetary policy and financial stability are also examined, emphasizing the need for careful consideration of the risks associated with accommodative monetary policies.