The Effects of Macroeconomic Variables on the Financial Stability in the Iranian Insurance Industry

The purpose of this article is to investigate the effects of macroeconomic variables such as exchange rate, interest rate, economic growth and real money residual growth on the financial stability in the Iranian insurance industry. For this purpose, Markov switching method is used. The ability to account for changes in the relationship between macroeconomic variables and the financial stability of the insurance industry over time is one of the most important features of the Markov switching method. The period under study is from the first quarter of 2005 to the fourth quarter of 2015. The results show that the effects of macroeconomic variables during the first regime (including the first quarter of 2005 to the third quarter of 2008) and the second regime (including the fourth quarter of 2008 to the fourth quarter of 2015) on financial stability of the insurance industry are different. So that the effects of exchange rate, interest rate and economic growth on the financial stability of the insurance industry in the first regime are the opposite of those of the second regime. This is while the growth of the real balance of money has a direct link to the financial stability of the insurance industry in each round of the regime, but in the second regime, which is a recessionary regime, its effect on financial stability is insignificant. Also, the findings show that the stability of the first regime is more than the second regime, so that if the insurance industry is in regime one in the previous period, with a probability of 94% it will be again in regime one.