The effect of monetary policy announcements and government interventions on the US insurance industry during the 2007-2009 crisis

• Published in: The journal of risk finance 2017-01, Vol.18 (5), p.500-522
• Main Authors: Grace, Martin F, Rauch, Jannes, Wende, Sabine
• Format: Article
• Language: English
• Subjects: Central banks; Economic crisis; Insurance industry; Interest rates; Liability insurance; Monetary policy; Stock exchanges
• ISSN: 1526-5943; 2331-2947
• DOI: 10.1108/JRF-02-2017-0039

Purpose The authors aim to analyze the impact of monetary policy interventions during the financial crisis of 2007-2009 on the stock prices of US insurance firms. Design/methodology/approach The authors use an event study methodology and a database of 89 policy announcements to analyze if monetary policy interventions could restore stability in the insurance sector. In addition, the authors conduct a second-stage analysis to identify the individual firms’ determinants of their stock market response. Findings The results indicate that the market reaction depends upon the type of policy intervention as well as the timing of the intervention. A second stage analysis examines firm level determinants of the insurers’ stock price responses and finds various firm specific factors also affect the insurers’ reaction to policy interventions. Originality/value First, to the best of the authors’ knowledge, this paper is the first to examine the impact of non-conventional policy announcements on firms from the insurance sector during the financial crisis. Moreover, the authors add to the literature an analysis on how conventional central bank announcements affect insurance firms.