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Systemic Risk in Financial Markets: How Systemically Important Are Insurers?

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  • Christoph Kaserer
  • Christian Klein

Abstract

This study investigates how insurers contribute to systemic risk in the global financial system. In a modeling framework embracing publicly traded and nonpublic firms, the financial system is represented by 201 major banks and insurers over the period from 2004 through 2014. In the aggregate, the insurance sector contributes relatively little to systemic losses; during the financial crisis and the European sovereign debt crisis, its risk share averaged 9 percent. Individually, however, several multi‐line and life insurers appear to be as systemically risky as the riskiest banks. Our results, therefore, affirm that some insurers are systemically important and indicate that insurers’ level of systemic risk varies by line of business. We discuss several important implications of our results for managing systemic risk in insurance, arguing for a combination of entity‐ and activity‐based regulation.

Suggested Citation

  • Christoph Kaserer & Christian Klein, 2019. "Systemic Risk in Financial Markets: How Systemically Important Are Insurers?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 86(3), pages 729-759, September.
    • Handle: RePEc:bla:jrinsu:v:86:y:2019:i:3:p:729-759
    DOI: 10.1111/jori.12236
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    Cited by:

    1. Tang, Qihe & Tong, Zhiwei & Xun, Li, 2022. "Insurance risk analysis of financial networks vulnerable to a shock," European Journal of Operational Research, Elsevier, vol. 301(2), pages 756-771.
    2. de França Carvalho, João Vinícius & Guimarães, Acássio Silva, 2024. "Systemic risk assessment using complex networks approach: Evidence from the Brazilian (re)insurance market," Research in International Business and Finance, Elsevier, vol. 67(PA).
    3. Yin-Yee Leong & Yen-Chih Chen, 2020. "Cyber risk cost and management in IoT devices-linked health insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(4), pages 737-759, October.
    4. Jassem Alokla & Arief Daynes & Paraskevas Pagas & Panagiotis Tzouvanas, 2023. "Solvency determinants: evidence from the Takaful insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 847-871, October.
    5. Tristan Jourde, 2022. "The Rising Interconnectedness of the Insurance Sector," Working papers 857, Banque de France.
    6. Daniel Dimitrov & Sweder van Wijnbergen, 2022. "Quantifying Systemic Risk in the Presence of Unlisted Banks: Application to the Dutch Financial Sector," Tinbergen Institute Discussion Papers 22-034/VI, Tinbergen Institute.
    7. Daniel Dimitrov & Sweder van Wijnbergen, 2023. "Macroprudential Regulation: A Risk Management Approach," Working Papers 765, DNB.
    8. Marion Dupire & Christian Haddad & Regine Slagmulder, 2022. "The Importance of Board Risk Oversight in Times of Crisis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 61(3), pages 319-365, June.
    9. Susanna Levantesi & Gabriella Piscopo, 2020. "Insurance Role for Handling the COVID-19 impact on Business and Society," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 9(4), pages 183-191, December.
    10. Kwangmin Jung & Donggyu Kim & Seunghyeon Yu, 2022. "Next generation models for portfolio risk management: An approach using financial big data," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(3), pages 765-787, September.
    11. Tristan Jourde, 2022. "The rising interconnectedness of the insurance sector," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(2), pages 397-425, June.
    12. Susanna Levantesi & Gabriella Piscopo, 2021. "COVID-19 Crisis and Resilience: Challenges for the Insurance Sector," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 11(3), pages 1-1.
    13. John Weirstrass Muteba Mwamba & Ehounou Serge Eloge Florentin Angaman, 2021. "Modeling System Risk in the South African Insurance Sector: A Dynamic Mixture Copula Approach," IJFS, MDPI, vol. 9(2), pages 1-17, May.
    14. Susanna Levantesi & Gabriella Piscopo, 2021. "COVID-19 Crisis and Resilience: Challenges for the Insurance Sector," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 0, pages 1-1.
    15. Das, Sanjiv R. & Kalimipalli, Madhu & Nayak, Subhankar, 2022. "Banking networks, systemic risk, and the credit cycle in emerging markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    16. Richard J. Butler & Gene Lai & Craig Merrill, 2024. "Insurers’ and banks’ market connectedness: generalized event study estimates from random forest residuals regression," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 49(4), pages 682-718, October.
    17. Tao Sun, 2022. "Cross‐country evidence on the relationship between global value chain position and the tail risk of insurers," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(3), pages 329-365, September.
    18. Yin-Yee Leong & Yen-Chih Chen, 0. "Cyber risk cost and management in IoT devices-linked health insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 0, pages 1-23.

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