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The Effects of Market Interest Rates on the Rates of Return on Investment of Life Insurance Companies
Journal of Insurance and Finance
2010, 21(1),
pp.3-35
Publisher : Korea Insurance Research Institute
Research Area : Business Management
Publisher : Korea Insurance Research Institute
Research Area : Business Management
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This paper shows how market rates of interest would affect rates of return on the investment of life insurance companies. To analyze the effects, we include interest rates, rates of return on stocks, and each volatility in the regression model for independent variables with rates of return on assets for a dependent variable using a partial adjustment model. We summarize the results as follows: First, the interest rates have a statistically significant and positive relationship with the rates of return on investment for both life insurance industry and three classes of life insurance companies. This result seems to be due mainly to a positive relationship between the interest rates and the rates of return on loans and short-term securities. Second, the volatility of interest rates is negatively related to the rates of return on investment for small, medium and foreign companies, while positively related to those for large ones. Third, the rates of return on stocks and their volatility are positively related to the rates of return on investment, but the effects appear to be negligible relative to the market interest rates. Finally, the speed of adjustment estimated for small and medium companies is relatively high and the maturity of asset portfolios is short.
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