The Stabilizing Role of Insurers in Financial Markets and Their Balance Sheet Structure : The Case of the COVID-19 Crisis

We examine the Italian insurers’ investments between 2017 and 2020, focusing on the interplay between the companies’ balance sheet structure and the financial market conditions. Our findings suggest that insurers play a stabilizing role in financial markets by increasing their exposure to securities whose price has fallen. However, their ability to weather shocks diminished on average during the pandemic-induced crisis, mainly for less capitalized insurers and for more capital-intensive assets. The abrupt fall of asset prices may in fact reduce insurers’ balance sheet capacity to absorb short-term losses. Insurance companies also reduced their exposure to securities whose price had fallen for assets relating to more volatile liabilities (e.g. unit-linked portfolios)