Abstract Between 2016 and 2022, life insurers in several European countries experienced negative long‐term interest rates, which put pressure on their business models. The aim of this paper is to empirically investigate the impact of negative interest rates on the stock performance of life insurers. To measure the sensitivities, I estimate the level, slope, and curvature of the yield curve using the Nelson‐Siegel model and empirical proxies. Panel regressions show that the effect of changes in the level is up to 2.8 times greater in a negative interest rate environment than in a positive one. Thus, a 1ppt decline in the interest rate level reduces European life insurers' stock returns by more than 10ppt when long‐term interest rates are below 0%. The study also demonstrates that the relationship between the level and the sensitivity to interest rates is convex, and that accounting for the slope and curvature can prevent biased estimates.
Nicolaus Grochola (Sun,) studied this question.