How Do the Interest Rate and the Inflation Rate Affect the Non-Life Insurance Premiums ?

This paper proposes an original framework based on nonlinear panel data models to study the empirical influence of the interest rate and the inflation rate on the non-life insurance premiums for fourteen developed countries over the period 1965-2008. More specifically, we apply the panel smooth transition error correction model which takes into account both the short and long-run effects of changes in economic variables on the growth rate of non-life insurance premiums and which allows the regression coefficients to vary across countries and over time. Our empirical results show that the interest rate and the inflation rate have a differentiated impact on the non-life insurance premiums depending on the value of the inflation rate. These empirical findings provide evidence of changes in insurance pricing rules.